Trace before you allocate
Classify a cost by traceability and behavior before using it in a cost decision.
The move: classify the cost before you calculate with it. Cost accounting is not just adding up invoices. It is a decision system. The same dollar can mean different things depending on whether it is direct or indirect, fixed or variable, controllable or committed, future or sunk. The two labels that save the most rework are traceability and behavior. Traceability Ask: can this cost be practically traced to the cost object? Direct material for one product can usually be traced. The plant manager's salary may support several lines and needs allocation if it belongs in full product cost. Behavior Ask:…
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