Direct Cost

Definition

identify direct costs specifically and exclusively with a given cost object in an economically feasible way

Characteristics

physically identify the amount of the cost that relates exclusively to a particular cost object.

tracing the direct cost to the cost object

Indirect Cost

Definition

Indirect costs cannot be identified specifically and exclusively with a given cost objective in an economically feasible way.
Assign indirect costs to cost objects

Examples

facilities rental costs, depreciation on equipment, and many staff salaries

Cost Allcation

Definition

Cost allocation assigns indirect costs to cost objects, in proportion to the cost object’s use of a particular cost-allocation base.
base is some measure of input or output that determines the amount of cost to be allocated to a particular cost object.
通常就是cost driver
Why need?
- strategic decision
- operational control
- external reporting
pruposes:
- predict economic effects
  - setting the optimal product and customer mix, pricing policy, chose value-chain function to develop as core competencies
  - predict the economic benefits and costs of process improvement efforts
- provide desired motivation and feedback for performance evaluation
- compute income and asset valuations for financial accounting
- justify costs or obtain reimbursement
  
  理想情况下，成本分配应该同时满足四个需求
  
  但是，成本分配通常也是一个迷惑和冲突的主要来源
  
  分配 固定成本 经常造成最大的问题
  
  管理者应该识别哪个目的是最重要的 “Different cost for different purposes”

Example

Dell:

Selection

base should be a measure of how much of the particular cost is caused by the cost objective
At most circumstances: most allocation bases are cost drivers

Method of Allocation Costs

direct costs: tracing
indirect costs: allocate using a cost-allocation base

Cost Pool

Definition

Individual costs allocated to cost objects using a single cost-allocation base.

Steps

Accumulate indirect costs for a period of time
select an allocation base
计量每一个product使用了多少cost-allocation base
按照数量的比例分配cost pool中的成本到单个产品

Examples

Unallocated Cost

might include R&D, legal design, accounting…
just leave them alone

Examples

For External Reporting Purposes

成本会计系统的目的之一就是提供存货的度量和COGS的度量
Four Attributes
- Manufacturing costs
- Product versus period costs
- Costs on the balance sheet
- Costs on the income statement

Manufacturing Costs

Direct-material costs
Direct-labor costs
Indirect production costs(Overhead)

Merchandising Company

Manufacturing Company

Comparing

Current Assets

Inventory

COGS

Activity-Based Management

Definition

Using the output of an activity-based cost accounting system to aid strategic decision making and to improve operational control
A value-added cost should be included
Nonvalue-added costs can be eliminated without affecting a product’s value to the customer

Benchmarking

continuous process of comparing products, services and activities to the best industry standards

Benefits of ABC

set an optimal product mix
estimate profit margins of new products
determine consumption of shared resources
keep pace with new product techniques
keep pace with technological changes
decrease costs associated with bad decisions
take advantage of reduced cost of ABC systems due to computer technology

To design an ABC system

Determine the key components of the cost accounting system
- cost objectives（成本对象：比如commercial和residential顾客）
- key activities（主要要从事哪些业务活动，形成activity dictionary）
- resources （每个activity需要消耗的资源，以及企业本身的资源）
- related cost drivers（成本和行为之间的因果关系，把resource和activity联系起来的，把activity和objective联系起来的成本动因）
Determine relationships among cost objectives, activities, and resources
Collect relevant data concerning costs and the physical flow of the cost-driver units among resources and activities
calculate and interpret the new activity-based information
- determine the traceable costs for each of the activity cost pools
- Determine the activity-based cost for account for each customer class.

Design of a Traditional Costing System

将间接成本只按一个cost driver 分配