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Prelim Week3

The document discusses different types of costs including inventory costs, direct and indirect costs, controllable and non-controllable costs, historical and future costs, relevant and sunk costs. It provides examples of inventory types, traceability of costs, managerial influence on costs, and costs considered for decision making. An illustration is included about a production manager choosing between fabric options for shirts and analyzing the costs based on time period, traceability, cost behavior, and relevance for decision making.

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John Paul Morales
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51 views10 pages

Prelim Week3

The document discusses different types of costs including inventory costs, direct and indirect costs, controllable and non-controllable costs, historical and future costs, relevant and sunk costs. It provides examples of inventory types, traceability of costs, managerial influence on costs, and costs considered for decision making. An illustration is included about a production manager choosing between fabric options for shirts and analyzing the costs based on time period, traceability, cost behavior, and relevance for decision making.

Uploaded by

John Paul Morales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FINANCIAL

MANAGEMENT
ACG016
OTHER TYPES OF COSTS
LECTURE WEEK NO.
3
• TYPE OF INVETORY
1. RAW MATERIALS – COST OF PRODUCTION MATERIALS
THAT HAS NOT BEEN USED IN PRODUCTION.
2. WORK IN PROCESS – COST OF PRODUCTION PARTIALLY
COMPLETED.
3. FINISHED GOODS – COST OF COMPLETED GOODS THAT
HAVE NOT BEEN SOLD.
• TRACEABILITY
1. DIRECT COSTS – COSTS THAT CAN DIRECTLY TRACE ON
COST OBJECT.
2. INDIRECT COSTS – COSTS THAT CAN’T DIRECTLY TRACE
ON THE COST OBJECT.
• MANAGEMENT INFLUENCE
1. CONTROLLABLE COSTS – COST THAT IS SUBJECT TO
SIGNIFICANT INFLUENCE BY A PARTICULAR MANAGER
WITHIN THE TIME PERIOD UNDER CONSIDERATION.
2. NON-CONTROLLABLE COSTS – COST THAT WHICH A
GIVEN MANAGER DOES NOT HAVE A SIGNIFICANT
INFLUENCE.
• PERIOD OF OCCURRENCE
1. HISTORICAL COSTS – COST THAT WERE INCURRED IN A
PAST PERIOD.
2. FUTURE COSTS – COST THAT EXPECTED TO BE
INCURRED IN A FUTURE PERIOD.
• DECISION MAKING AND OTHER ANALYTICAL PURPOSES
1. RELEVANT COST – COST THAT ARE DIFFERNET UNDER ONE
DECISION ALTERNATIVE THAN UNDER ANOTHER DECISION
ALTERNATIVE.
2. SUNK COST – PAST COST THAT HAVE BEEN INCURRED AND
IRRELEVANT FOR FUTURE DECISION.
3. OPPORTUNITY COST – VALUE OF THE BEST ALTERNATIVE
FOREGONE AS THE RESULT OF SELECTING A DIFFERENT USE OF
RESOURCE.
4. MARGINAL COST – COST ASSOCIATED WITH NEXT UNIT OR
INCEREMENTAL COST ASSOCIATED WITH AN ADDITIONAL
PROJECT AS OPPOSED TO THE NEXT DISCRETE UNIT.
5. VALUE ADDED COST – COST THAT ADD VALUE TO THE
PRODUCT.
• TIME FRAME PERSPECTIVE
1. COMMITTED COST – COST THAT IS INEVITABLE
CONSEQUENCE OF A PREVIOUS COMMITMENT.
2. DISCRETIONARY COST – COST WHICH THE SIZE OR THE
TIME OF OCCURRENCE IS A MATTER OF CHOICE.
ILLUSTRATION:
BETTINA CABRERA IS THE PRODUCTION
MANAGER OF RTW MANUFACTURING OUTFIT. A
DECISION NEEDS TO BE MADE ABOUT THE TYPE
OF CLOTHING MATERIAL OR FABRIC TO BE USED
TO MAKE A SHIRT. THE FABRIC THAT HAS BEEN
USED IN THE PREVIOUS PRODUCTION COST P40
PER YARD BUT IT IS NOT AVAILABLE CURRENTLY.
SIMILAR MATERIAL FROM ANOTHER SUPPLIER
WILL COST P50 PER YARD.
• TIME PERIOD
P40 – HISTORICAL COST
P50 – FUTURE COST
• TIMING OF RECOGNITION
COST OF THE FABRIC IS INVENTORIABLE OR PRODUCT COST
• TRACEABILITY
DIRECT COST BECAUSE FABRIC IS DIRECTLY TRACEABLE IN
THE SHIRT.
• COST BEHAVIOR
THE COST OF THE FABRIC PER YARD (P40 AND P50) IS
VARIABLE BECAUSE AS THE NUMBER OF YARD INCREASES
THE TOTAL COST INCREASES.
• COST CLASSIFICATION FOR DECISION MAKING
THE P50 IS RELEVANT BECAUSE IT CAN COMPARE TO OTHER
FABRIC WITH SAME QUALITY TO SELECT THE BEST
ALTERNATIVE.
THE P40 IS IRRELEVANT BECAUSE IT IS A PAST COST.
• MANAGERIAL INFLUENCE
THE COST OF THE FABRIC IS CONTROLLABLE SINCE MS.
CABRERA HAS THE AUTHORITY TO MAKE THE DECISION.
REFERENCE
• Cabrera, M.E. & Cabrera, G.A. (2017). Management Accounting
(2017 Edition). GIC Enterprises & Co., Inc.

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