1. Introduction to Cost Terms
원가회계 Chapter 2
Introduction to Cost Terms

2. Examples of Managers’ Decision Making
How much should we spend for R&D ?
What is the effect of product design changes on manufacturing costs ?
Should we replace some production assembly workers with a robots ?
Should we spend more of the marketing budget on sales promotion coupons and less on advertising ?
Should we distribute from a central warehouse or from a regional warehouse ?

3. Cost
A resource sacrificed or foregone to achieve a specific objective.
Monetary amounts that must be paid to acquire goods and services.
Inflow vs. Outflow Perspectives

4. Cost Objects Examples of Cost Objects
Anything for which a separate measurement of costs is desired.
Examples of Cost Objects
Product
Service
Project
Customer
Brand Category
Activity
Department
Program

5. Cost Accumulation and Cost Assignment
Cost Tracing
Cost Assignment
Cost Allocation

6. Cost Tracing and Cost Allocation
Direct Costs
Cost Assignment
Cost Object
Cost Allocation
Indirect Costs
Cost tracing is the assigning direct costs to the chosen cost object. Cost allocation is the assigning indirect costs to the chosen cost object.

7. Direct Costs/Indirect Costs
원가회계 Chapter 2
Direct Costs/Indirect Costs
Direct Cost
Direct Cost
Indirect Cost
Indirect Cost
Cost Tracing
Cost Allocation
Cost Object A
Cost Object B

9. Factors Affecting Direct/ Indirect Cost Classification
The materiality of the cost in question
Available information-gathering technology
Design of operations
Contractual arrangements

10. The direct/indirect classification depends on the choice of the cost object.
주조부문
선반부문 제품 A B C
특수선반작업
공장장의 급여
주조부문 관리자의 급여
선반부문 특수선반작업자의 임금

11. Cost Driver A cost driver is any factor that affects total costs
Changes in a particular cost driver do not automatically lead to changes in overall costs

12. Cost Behavior Patterns
원가회계 Chapter 2
Cost Behavior Patterns

13. 원가회계 Chapter 2
Cost behavior, or how costs behave in response to changes in production volume(a cost driver), is a concern for decision makers in almost all industries

14. Variable Cost, Fixed Cost
Cost that changes in total in proportion to changes in a cost driver
Fixed Cost
Cost that does not changes in total despite changes in a cost driver

15. Jim & Barry’s Ice Cream Company
Quarterly
Production
(Gallons)
Total Gas &
Maintenance
Costs
Cost
per
Gallon
400,000
500,000
600,000
700,000
800,000
$15,360
19,200
23,040
26,880
30,720
$0.0384
0.0384

16. Graphic Representation of Variable Costs(Total Cost)
$40,000
VC = $ * Q
30,000
$30,720
Quarterly Variable Costs(VC)
$26,880
20,000
$23,040
$19,200
in dollars
10,000
$15,360
Slope =
200
400
600
800
1,000
Quarterly Production (Q)
in thousands of gallons

17. Graphic Representation of Variable Costs(Unit Cost)
VC/Q = $ per gallon
$0.05
0.04
0.03
Quarterly Variable Costs per Gallon
0.02
(VC/Q)
0.01
0.00
200
400
600
800
1,000
Quarterly Production (Q)
in thousands of gallons

18. Jim & Barry’s Ice Cream Company
Quarterly
Production
(Gallons)
Total
Rental
Costs
Cost
per
Gallon
400,000
500,000
600,000
700,000
800,000
$10,000
10,000
$0.0250
0.0200
0.0167
0.0143
0.0125

19. Graphic Representation of Fixed Costs(Total Cost)
$20,000
15,000
FC = $10,000
10,000
Quarterly Fixed Costs (FC)
5,000
200
400
600
800
1000
Quarterly Production (Q)
in thousands of gallons

20. Graphic Representation of Fixed Costs(Unit Cost)
$0.0250
$0.0250
0.0200
0.0200
0.0167
0.0150
0.0143
0.0125
0.0100
Quarterly Fixed Costs per Gallon (FC/Q)
0.0050
200
400
600
800
1000
Quarterly Production (Q)
in thousands of gallons

21. Mixed Cost (Semivariable Cost)
Costs comprised of both fixed and variable cost components

22. Jim & Barry’s Ice Cream Company
Quarterly
Production
(Gallons)
Fixed
Cost
Component
Variable
Cost
Component
Cost
per
Gallon
Total
Cost
400,000
500,000
600,000
700,000
800,000
$10,000
10,000
$15,360
19,200
23,040
26,880
30,720
$25,360
29,200
33,040
36,880
40,720
$0.0634
0.0584
0.0551
0.0527
0.0509

23. Graphic Representation of Mixed Costs(Total Cost)
$50,000
C = $10,000+($ * Q)
$40,720
40,000
$36,880
$33,040
30,000
$29,200
$25,360
20,000
Quarterly Costs (C)
Slope
= $0.0384
Variable cost
10,000
Fixed cost
200
400
600
800
1,000
Quarterly Production (Q)
in thousands of gallons

24. Financial Statements and Cost Terminology
Capitalized costs are first recorded as an
asset(capitalized) when they are incurred.
These costs are written off to those periods
assumed to benefit from their incurrence.
Noncapitalized costs are recorded as
expense of the accounting period when
they are incurred.

25. Periods Expensing of Capitalized Costs Costs Expensed as Incurred
Service-sector Companies
Costs
Balance Sheet
Income Statement
Revenue
deduct
Capitalized
Costs
Assets
Periods Expensing of Capitalized Costs
Noncapitalized
Costs
Costs Expensed as Incurred
equals Operating Income

26. Merchandising-sector Companies
Costs
Balance Sheet
Income Statement
Revenue
deduct
When
sales
occur
Capitalized
Inventoriable
Costs
Inventory Assets
Merchandise
Merchandise
Purchases
Costs of Goods Sold
equals Gross Margin
Capitalized
Costs
deduct
Periods Expensing of Capitalized Noninventoriable Costs
Capitalized
Noninventoriable
Costs
Noninventory Assets
Noncapitalized
Costs
Costs Expensed as Incurred
equals Operating Income

27. Manufacturing-sector Companies
Costs
Balance Sheet
Income Statement
Revenue
Direct Materials
Inventory
DMP
deduct
When
sales
occur
Capitalized
Inventoriable
Costs
Work-in-Process
Inventory
Finished Goods
Inventory
ODMC
Costs of Goods Sold
IMC
equals Gross Margin
Capitalized
Costs
deduct
Periods Expensing of Capitalized Noninventoriable Costs
Capitalized
Noninventoriable
Costs
Noninventory Assets
Noncapitalized
Costs
Costs Expensed as Incurred
equals Operating Income

28. Manufacturing Cost Direct material costs Direct manufacturing
labor costs
Indirect manufacturing
costs

29. 원가계산준칙 (증선위, 2000.7.22) 제4조(제조원가의 범위) ① 제조원가는 제품의 생산과 관련하여 소비된
경제적 자원의 가치만을 포함한다.
② 비정상적으로 발생한 경제적 자원의 소비는
제조원가에 포함하지 아니한다.

30. 원가계산준칙 (증선위, 2000.7.22) 제7조(제조원가요소의 분류) ① 제조원가요소는 재료비, 노무비 및 경비로
분류하거나, 회사가 채택하고 있는
원가계산방법에 따라 직접재료비,
직접노무비 및 제조간접비 등으로
분류할 수 있다.

31. 제조원가의 분류 재료비 직접재료비 노무비 직접노무비 경 비 제조간접비 직접재료비 간접재료비 직접노무비 간접노무비 직접경비 X
간접경비 X
경 비
제조간접비

32. Prime Costs / Conversion Costs
Direct material costs
Direct manufacturing labor costs
Indirect manufacturing costs
Prime Costs
Conversion Costs

33. Different Product Costs for Different Purposes
원가회계 Chapter 2
Different Product Costs for Different Purposes
Produc-
toin
Maket-ing
Distri-butoin
R&D
Design
Service
Product Costs for F/S
Product Costs for Reimbursement under Government Contracts
Product Costs for Pricing and Product Emphasis