Uploaded by Ashianna Kim

Cost Notes (1)

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1. Define Cost, Expense, Accounting, Cost Accounting
Cost is the expenditure required to create and sell products and services, or to acquire
assets.
Expense is the money spent, or cost incurred, by a business in their effort to generate
revenues.
Accounting is the process of identifying, measuring, recording, and communicating the
required information relating to the economic events of an organization to the interested
users of such information.
Cost Accounting is the recording of all business in a way that can be used to improve its
management.
2. Differentiate Cost Accounting from Financial Accounting and Managerial Accounting
Cost Accounting focuses on production costs, as well as developing a pricing strategy for
products/services offered by companies.
Financial Accounting deals with all of the raw data generated by day-to-day operations.
Managerial Accounting involves identifying, measuring, analyzing, interpreting, and
communicating financial information to managers to help them set an organization’s
goals.
3. Define and give example: Direct Material, Direct Labor, Overhead, Variable Cost, Fixed
Cost
Direct Material is the physical items built into a product. Example, if Company A is a toy
manufacturer, the direct material would be the plastic used to make the toy.
Direct Labor is production or services labor that is assigned to a specific product, cost
center, or work order. Example is machine operators.
Overhead are business costs that are related to the day-to-day running of the business.
Examples are rent and utilities such as water, electricity, gas and internet.
Variable Cost is a production expense that increases or decreases depending on changes
in a company’s manufacturing activity. Example is the raw materials used as a
components of a product are variable costs because this type of expense typically
fluctuates based on the number of units produced.
Fixed Cost is an expense that does not change when sales or production volumes increase
or decrease. Examples are rent, salaries and interest expenses.
4. Note the process of segregating mixed cost using Scattergraph Method, High-Low
Method, Least-Square Method
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