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(5) The management accountant’s role today has frequently been expanded to include a much more strategic focus, with the management accountant being involved in high-level strategic decisions of the firm.  To satisfy management’s information needs at this level, cost data extends to a consideration of value-adding costs, and a focus on cost reduction and cost elimination rather than merely cost control.  In addition to the information required for the above purposes, high-level information regarding value creation and strategic change is also required.

B.  COST DEFINITIONS AND CLASSIFICATIONS

A key concept for your understanding of management accounting is the concept of “different costs for different purposes”.  Costs tend to be defined differently depending on whether they are being used for budgeting, costing,  decision-making, performance evaluation, or value adding purposes.

1. THE COST OBJECT (OR COST OBJECTIVE)

The item that the firm is costing is called the “cost object” or “cost objective”.  (It may be a whole process, a department,  or a product/service/job.)

Differences between product/service/job?   (Product is an individual physical item (e.g. you manufacture kitchen sinks); a job would be a particular person’s entire kitchen that you were making and installing; a service would be provided by the bank who provides you with a personal loan to buy the kitchen.)

Each of these have to be “costed”, and from here on in most cases use the terms interchangeably.  Costing principles are identical whether we are referring to a product, a service, or a job.

2.  COST DRIVERS

A “cost driver” (or activity measure/activity level) is something which causes a cost to increase, and which is measurable and able to be linked to the product, service or job which the firm is costing.

There are three possible scenarios regarding cost drivers:

Relatively easy to choose the cost driver.  (e.g. what drives the cost of bread used for Subway?)
More than one cost driver exists, and firms have to choose one. (e.g. assume a kitchen firm employs casual labour for installation.  The cost of labour varies with the number of kitchens, and also varies with the number of direct labour hours worked installing kitchens.)

There is no obvious cost driver.  (The cost of lighting in Subway depends primarily on the time the lights are on.  What is the link between that and each product?  Nothing, yet firms have to choose something with which to allocate lighting to each product.  Is one more accurate than another?  Yes, hours would be.  Doesn’t this mean then that firms would choose the more accurate?  Not necessarily – accuracy does not come free of cost.)

3.   VARIOUS DEFINITIONS OF “COST”

3.1 FULL COST

The full costs of a manufacturer are associated with the functional activities of the firm listed below (called the value chain because all of these functions “add value” to the product):

1. Research and development     ) UPSTREAM
2. Design              &本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。