602 Management Accounting
David Xu Id: 65990771
Session Preparation Assignment (SPA) #2
Understanding Key Cost Relationships
1. Read Chapter 2 of SN, Key meanings in the Chapter.
Understanding key cost in a firm is the most important issue in management accounting. That is because business survives on value exchange.
Customers and business are willing to exchange money and services (products) based on the costs. How products cost can effect a firm’s financial health is very important for managers.
Cost objects are the different aspects of a firm’s operation, or products, it is essential concept in management accounting.
If not properly handled, cost objects can hinder, not help, the manager to understand to company’s reality. The example here is very easy to explain the situation. Also cost objects are vital to planning, motivation, and controlling.
In some cases, manager makes decision to close or open new store in a region based on the cost objects.
We can also see products as cost object, normally happen in manufacture business.
Because accrual accounting makes a number of judgement and assumptions and all that are subjective, so it is common that managers sometimes understate or overstate a company’s profits in a period.
Direct cost and indirect cost VS Raw Material and Maintenance cost
The main business in NZ and Australia are service business, mostly dealing with people.
Cadbury is a good example for manufacture business.
Product cost and period cost. The later is a new concept and is not difficult to understand.
Apportion indirect cost.
Deciding indirect cost in a company is often not straightforward and sometimes involving a number of judgements and assumptions.
We can attach overhead cost to products to better understanding the reality.
Function based costing system
Predetermined Overhead Absorption rates
Activity based costing systems
Variable costs are normally direct costs, it...
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