The Complete CFO Handbook

Chapter 19. Classifying Costs

Agenda

Item 1	Distinguish between costs, expenses, and losses.
Item 2	Distinguish between direct and indirect costs.
Item 3	Identify the three integral components of a product.
Item 4	Distinguish between prime costs and conversion costs.
Item 5	Define variable, fixed, and mixed costs and discuss the effects of changes in volume on these costs.
Item 6	Classify costs by department, functional area, or period in which they are charged to income.
Item 7	Analyze the relationship of costs to planning, controlling, and decision making.
Item 8	Identify the differences between standard and budgeted costs, controllable and noncontrollable costs, and committed and discretionary fixed costs.
Item 9	Describe the basic approaches to cost estimation for new products.

Cost is defined as the value of the sacrifce made to acquire goods or services, measured in dollars by the reduction of assets or incurrence of liabilities at the time the benefts are acquired. At the time of acquisition, the cost incurred is for present or future benefts. When these benefts are utilized, the costs become expenses.

Management is constantly faced with making choices among alternative courses of action. Information about various types of costs and their behavioral patterns is vital to effective decision making. Data can be visualized as being in one large cost accounting information pool that is routinely accessed for purposes of product costing and performance evaluation and managerial decision making. The ...