Cost assignment: direct tracing, driver tracing, and allocation
Cost assignment: is one of the key processes of the cost accounting system.
Cost: is the cash ornoncash assets sacrificed for goods and services that are expected to bring a current or future benefit to the organization.
Expenses: expired cost
Cost objects: is any item, such as products,customers, departments, projects, and so on, for which costs are measured and assigned.
Accuracy of Assignments: is a relative concept and has to do with the reasonableness and logic of the cost assignmentmethods that are being used.
Cost are directly or indirectly associated with cost objects.
* Indirect costs: are costs that cannot be traeced easily and accurately to a costobject.
* Direct costs: are those costs that can be traced easily and accurately to a cost object.
Thus, traceability is simple the ability to assign a cost object in an economically feasible way bymeans of a causal relationship.
Methods of Tracing
* Directs tracing: is the process of identifying and assigning costs to a cost object that are specifically or physically associated with the costobject.
* Driver tracing: is the use of drivers ( are factors that cause changes in resource usage, activity usage, costs, and revenues) to assign costs to cost objects.
Assigning Indirect CostsIndirect costs cannot be traced to cost objects. Assignment of indirect costs to cost objects is called allocation. Allocation is based on convenience or some assumed linkage.
Arbitrarilyallocating indirect costs to cost objects reduces the overall accuracy of the cost assigments. It must be admitted that allocations of indirect costs may serve other purposes besides accuracy.
Product costsTangible products: are goods produced by converting raw materials through the use of labor and capital inputs such as plant, land, and machinery (televisions, automobiles, and computers)....