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STUDY GUIDE

BMAC5203

ACCOUNTING FOR DECISION MAKING

Week 2
Topic 2: Basic Cost Concepts and Cost Classifications
Readings Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of managerial accounting (3rd ed.). South-Western Cengage Learning. Chapters 2 and 3 (page 28–98) e-Content (a) (b) Download PowerPoint slides (lecture 2) from myVLE (Group Tool) and read through the notes before your first class. Download past examination questions from OUM’s digital library and do the questions relevant to this topic.

Study Notes The learning outcomes: 1. Explain the meaning of cost and how costs are assigned to products and services. (a) Cost is the amount of cash or cash equivalent incurred for producing goods and/or services. A cost unit/cost object is any item such as products, departments, customers, and activities for which costs are measured and assigned. Cost are assigned to cost objects either directly or indirectly. Direct cost such as direct material, direct labour and direct expenses are traced to cost units directly. Indirect costs referred to as production overheads cannot be directly identified to the cost objects. Therefore, they are allocated by using a more complex approach. (This approach will be discussed later).

(b)

(c) (d)

(e)

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STUDY GUIDE

BMAC5203

ACCOUNTING FOR DECISION MAKING

2.

Define how costs are classified (cost classification). Costs can be classified using the three broad managerial accounting objectives discussed in Week 1. Figures 1 to 3 show these classifications.

Figure 1: Cost classification for external product costing Objective 1: For external product costing (stock valuation purposes) costs are classified by the function they serve, as summarised below:

Figure 2: Cost classification for planning and control Objective 2: For planning and control purposes costs are classified

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