Classifying Costs | California State University, Northridge - Edubirdie

University:
California State University, Northridge
Course:
ACCT 230 | Introduction to Managerial Accounting
Academic year:

2024
Views:

100

Pages:

10
Author:

snowbaby1950sp2

Classifying Costs  By Behavior  Fixed  Variable  By Traceability  Direct  Indirect  By Function Product Period Cost Classifications by Behavior Cost Behavior How a cost will react to changes in the level of business activity.  Total variable costs change when the level of activity changes.  Total fixed costs remain unchanged when the level of activity changes. Total Variable Cost Total Long Distance Telephone Bill A variable cost is one that changes in total in proportion to changes in the volume of activity. Your total long distance telephone bill is based on how many minutes you talk. Minutes Talked Variable Cost Per Unit On a per unit basis, a variable cost remains constant over a wide range of activity. Per Minute Telephone Charge The cost per long distance minute talked is constant. For example, 10 cents per minute. Minutes Talked Total Fixed Cost A fixed cost is one that remains constant in total even when the volume of activity changes. Monthly Basic Telephone Bill Your monthly basic telephone bill probably does not change when you make more local calls. Number of Local Calls Fixed Cost Per Unit On a per unit basis, a fixed cost changes as the volume of activity changes. Monthly Basic Telephone Bill per Local Call The average cost per local call decreases as more local calls are made. Number of Local Calls Cost Classifications for Predicting Cost Behavior Behavior of Cost (within the relevant range) Cost In Total Per Unit Variable Total variable cost changes as activity level changes. Variable cost per unit remains the same over wide ranges of activity. Fixed Total fixed cost remains the same even when the activity level changes. Fixed cost per unit goes down as activity level goes up. Classification of Costs by Traceability Direct Costs Indirect Costs  Costs that can  Costs cannot  Examples:  Example: be easily and conveniently traced to a unit of product or other cost objective.  Direct material  Direct labor be easily and conveniently traced to a unit of product or other cost objective.  Manufacturing overhead Cost Classification by Function Product costs Include expenditures that are necessary and integral to finished products. Capitalized on the balance sheet until sold. Inventory Cost of Good Sold Period costs Include expenditures identified more with a time period than with finished products. Expensed on the income statement. Expense Sale Balance Sheet Income Statement Income Statement Classification of Costs by Function Product Costs Period Costs  Direct materials  Selling  Direct labor  General and  Overhead administrative expenses

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