Accounting Revision Notes for test

Essay by dean04042004College, Undergraduate April 2006

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A cost object is an item which is assigned a separate measure of cost.

A variable cost is a cost that changes whilst a fixed cost doesn't change.

A direct cost is a cost that can be identified with or traced to a particular cost object in an economic manner (i.e. paper from a text book). Whereas an indirect cost is a cost that cannot be identified with or traced to a cost object in an economic manner (i.e. the glue that binds the book together). Instead this cost is put under management overhead.

Costs can be called 'controllable' or 'uncontrollable'. This means that a controllable cost is a cost that a manager can control or significantly influence (i.e. Cost of raw material used to produce Laptop's - this is controllable by the quantity but the price is not). An uncontrollable cost is something that a manager cannot control as has no influence on the outcome (i.e.

the advertising cost of the campaign of Coca-Cola Amatil in U.S.A).

The Value Chain is a set of linked processes or activities that begins with acquiring resources and ends with providing products that customers value. (p.49)

Manufacturing costs are split up into three main cost headings. Direct Material, Direct Labour and Manufacturing Overhead. Direct Material is the raw material that is consumed in the manufacturing process. Indirect Materials are often classified as insignificant and are then classified under the manufacturing overhead. Direct labour is the cost of salaries, wages and labour on costs for personnel who work directly on the manufactured product. Manufacturing Overhead is all manufacturing costs other than direct labour and direct material costs. This includes indirect materials and indirect labour costs. Manufacturing Overhead costs are also overtime premium and idle time.

Now that we have understood the 3 different manufacturing...