Management Accounting Costing and Budgeting

Topics: Variable cost, Costs, Management accounting Pages: 18 (4992 words) Published: December 23, 2012
I. Identify and classify different types of cost incurred in Foxwood Company with an appropriate cost classification There are many concepts of cost in an organization. Costs also are used in different business applications, such as financial accounting, cost accounting, budgeting, capital budgeting, and valuation. Consequently, there are different ways of categorizing costs according to their relationship to output as well as according to the context in which they are used. Following this summary of the different types of costs are some examples of how costs are used in different business applications. The two basic types of costs incurred by businesses are fixed and variable costs. Variable costs and fixed costs represent the total amount of costs for the company. This is important to know because the variable costs are going to determine how much we spend to make our company work as opposed to fixed costs which we have to pay anyway. * Fixed costs: are costs that will be the same no matter what else changes with the company. Examples of fixed costs would be rent, property tax, insurance and interest expense, depreciation, operation costs, etc. These fixed costs remain constant in spite of changes in output. According to the scenario, fixed costs are as below:

* Plant-leasing costs: they are costs that company has to spend monthly or quarterly, regardless to the company could make profit or not. * Depreciation-plant equipment: It is cost that company has to be incurred despite company are producing or not. * Property taxes on plant equipment: the amount that company has to pay as prescribed by law. * Fire insurance on plant equipment: whether company is being operated or not, this is the amount that are paid to prevent the loss of plant equipment when fire happens. So that it is not affected by the volume of product units. * Operation costs – Marketing promotions, Marketing salaries, Distribution costs and Customer-service costs: they are costs that do not depend on the numbers of products produced.

* Variable costs: on the other hand, variable costs fluctuate in direct proportion to changes in output. Labor and material costs are typical variable costs that increase as the volume of production increases. It takes more labor and material to produce more output, so the cost of labor and material varies in direct proportion to the volume of output. In scenario, we have variable costs as below:

* These costs increase when the number of product increases and vice versa. These costs increase when the number of product increases and vice versa. Sandpaper
* Materials-handling costs
* Lubricants and coolants
* Miscellaneous indirect manufacturing labor
* Direct manufacturing labor: the more products are produced, the more cost that company has to spend to hire workers and vice versa. * Direct materials inventory: the cost that is paid for inventory increases when the materials used in direct manufacturing increase. * Work-in-process inventory.

* Direct materials purchased: the more direct materials bought, the more cost that company will pay for.

Fixed costs| Variable costs|
Plant-leasing costsDepreciation-plant equipmentProperty taxes on plant equipmentFire insurance on plant equipmentMarketing promotionMarketing salariesDistribution costsCustomer-service costs| SandpaperMaterials-handling costsLubricants and coolantsMiscellaneous indirect manufacturing laborDirect manufacturing laborDirect materials inventoryWork-in-process inventoryDirect materials purchased|

Besides, according to type, some costs are considered as direct and indirect costs. * Direct costs: are similar to variable costs. They can be directly attributed to the production of output. Only those costs that vary directly with the volume of production are charged to products as they are manufactured. The system of valuing inventories called direct costing is also known as variable costing. The...
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