ACC 200 Lecture Notes - Lecture 2: Direct Labor Cost, Management Accounting, Indirect Costs
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17 Nov 2017
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Accumulating costs is the way that costs are measured and recorded. Managerial accounting systems are structured to measure and assign costs. A cost object is any item such as a product, customer, department, project, geographic region or plant, for which costs are measured and assigned. Costs can be assigned to cost objects in a number of ways. The choice of a method depends on a number of factors, such as the need for accuracy. The objective is to measure and assign costs as well as possible, given management objectives. Direct costs are costs that can be easily and accurately traced to a cost object. When a cost is easy to trace, we mean that the relationship between the cost and the object can be physically observed, is easy to track, and results in more accurate cost assignments. Indirect costs are costs that cannot be easily and accurately traced to a cost object.
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Kubin Companyâs relevant range of production is 21,000 to 25,000 units. When it produces and sells 23,000 units, its average costs per unit are as follows:
Average Cost per Unit | ||
Direct materials | $ | 8.10 |
Direct labor | $ | 5.10 |
Variable manufacturing overhead | $ | 2.60 |
Fixed manufacturing overhead | $ | 6.10 |
Fixed selling expense | $ | 4.60 |
Fixed administrative expense | $ | 3.60 |
Sales commissions | $ | 2.10 |
Variable administrative expense | $ | 1.60 |
2. Assume the cost object is the Manufacturing Department and that its total output is 23,000 units.
a. How much total manufacturing cost is directly traceable to the Manufacturing Department?
b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?
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