The computer was expected to last four years with no salvage value and was to be Assignment2 cost classification pricing using the straight-line method. Represents the cost of the materials that can be identified directly with the product at reasonable cost. An example of direct material is the lumber used to build a bunk bed.
In contrast, indirect materials are all materials involved in the production of a product that are not direct materials. Prime costs are directly related to production.
Per-unit fixed costs increase decrease when volume decreases increases. This is the very Assignment2 cost classification pricing of the important concept of fully utilizing productive capacity.
However, lumber is an indirect material cost when used as shipping crates for equipment. Variable costs are costs which change with a change in the level of activity. Direct labor consists of all labor directly involved in the production of a finished product that can be easily traced to the product and that represents a major labor cost of producing that product.
This classification is closely related to the cost elements of a product i. Telephone charges are relatively simple to separate into fixed and variable costs; however, in some situations, the variable and fixed components must be approximated.
Fixed costs contain both fixed and variable characteristics over various relevant ranges of operation. Breakup of Product Costs The product costs are further classified into: With all other factors held constant, such as selling price per unit and total fixed cost, each desired per-unit expansion of productive activity triggers an incremental change in total variable costs equal to a constant amount per unit.
The two categories, on the basis of their relationship to production, are prime costs and conversion costs: Understanding their behavior is vital in almost all aspects of product costing, performance evaluation, and managerial decision making.
Lumber is a direct material cost when used in the manufacture of wood furniture. The fact that fixed cost per unit changes as production changes does not mean that fixed cost should be treated like variable costs.
The fixed part of a semi-variable cost usually represents a minimum fee for making a particular item or service available. Therefore, two relevant ranges exist in this situation: Sunk costs are those costs that have been irreversibly incurred or committed; they may also be termed unrecoverable costs.
They include direct materials, direct labor, factory wages, factory depreciation, etc. For example, cost of paper in newspaper printing, cost of Direct labor: This ludicrous situation resulted because a fixed cost i.
Indirect labor is all labor involved in the production of a product that is not considered direct labor. Opportunity Costs The costs discussed so far are historical costs which means they have been incurred in past and cannot be avoided by our current decisions.
Fixed Costs Fixed costs are those in which total fixed cost remains constant over a relevant range of output, while the fixed cost per unit varies with output. However, in a company that provides maintenance service to others, maintenance personnel would be considered a direct labor cost.
Costs are usually classified as follows: For example, depreciation on fixed assets, etc. Examples include direct materials, direct labor, etc. Total variable costs change in proportion to changes in volume.
Upper-level management controls the volume of production and is, therefore, responsible for fixed costs.
Semi-variable Cost Semi-variable costs contain both fixed and variable costs. Variable costs are controlled by the department head responsible for incurring them. Thus these are our costs. Total fixed costs remain constant when volume changes.Analyze your company’s cost classification for pricing of the navigation system.
In order to complete this assignment, refer to the scenario from Assignment 1, as well as to the scenarios and readings from previous weeks. Cost and Cost Classifications Cost is a sacrifice of resources to obtain a benefit or any other resource.
For example in production of a car, we sacrifice material, electricity, the value of machine's life (depreciation), and labor wages etc. © McGraw-Hill Ryerson Limited., LEARNING OBJECTIVES 1. Identify and give examples of each of the three basic cost elements involved in the.
Managerial Accounting and Cost Classification By Laurie L. Swanson PrinciplesofAccounting II Product Pricing Cost Analysis Budgeting Break-even analysis Profit Planning. by identifying the appropriate classification for the cost items listed on the following slides for Minchoy Company.
Cost Classifications [All Types] Published. 9 years ago. on. Oct 31, By. This classification provides management with information necessary for income measurement and product pricing. The classification of a cost based on its relationship to the product will change as the relationship changes.
Assignment2 Cost Classification & Pricing Essay Cost Classification and Pricing Student Name Student University Cost and Price Analysis Cost Classification and Pricing Cost Classification According to Maher, L.
(), cost classification refers to the separation of different expenses in various categories.Download