Chapter 2 Cost Accounting Terminology

Cost Object

is anything for which we want to measure a cost products service, project, customers, activity, and departments are all cost object for example

Cost Driver

A variable such as the level or volume, that casually affects costs over a time span. Costs are fixed or variable within a certain range of activity level (or output volume)

Relevant Range

The range of normal activity level (or volume) in which there is a specific relationship between the cost driver and the cost

Direct Costs

Can be conveniently and economically traced to a cost object

Indirect Costs

Cannot be conveniently and economically traced (tracked) to a cost object. Should be Allocated to a cost object in a relational and systematic manner.

Variable Costs per unit

Constant. Ex: If a product takes 5 pounds of material each, it stays the same per unit whether 100 or 200 units are produced.

Fixed Costs per unit

Change Inversely with the level of outputs. As more units are produced the same fixed cost is spread over more units, reduced the fixed cost per unit. Managers often use unit costs for decision-making. Ex: determining a price for the firms products. However keep in mind that unit costs can be misleading.

Variable Costs

Changes in total in proportion to changes in the level of activity or output volume

Fixed Costs

Remain unchanged