Mr.Nuwan Gunathilaka

9/3/2012

MANAGEMENT
AND COST
ACCOUNTING
SIXTH EDITION

COLIN DRURY

Management and Cost Accounting, 6th edition, ISBN 1-84480-028-8
© 2000 Colin Drury
© 2004 Colin Drury

Part One:
Introduction to Management and Cost Accounting
Chapter Two:
An introduction to cost terms and concepts

Management and Cost Accounting, 6th edition, ISBN 1-84480-028-8
© 2000 Colin Drury
© 2004 Colin Drury

1

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2.1a
Cost Objects
• A cost object is any activity for which a separate measurement of cost is required (e.g.cost of making a product or providing a service).
• A cost collection system normally accounts for costs in two broad stages:
1. Accumulates costs by classifying them into certain categories
(e.g.labour,materials and overheads).
2. Assigns costs to cost objects.

Management and Cost Accounting, 6th edition, ISBN 1-84480-028-8
© 2000 Colin Drury
© 2004 Colin Drury

2.1b
Direct and indirect costs
• Direct costs can be specifically and exclusively identified with a given cost object.
• Indirect costs cannot be specifically and exclusively identified with a given cost object.
• Indirect costs (i.e.overheads)are assigned to cost objects on the basis of cost allocations.

Management and Cost Accounting, 6th edition, ISBN 1-84480-028-8
© 2000 Colin Drury
© 2004 Colin Drury

2

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2.1c

• Cost allocations = process of assigning costs to cost objects that involve the use of surrogate, rather than direct measures.
• The distinction between direct and indirect costs depends on what is identified as the cost object.

Management and Cost Accounting, 6th edition, ISBN 1-84480-028-8
© 2000 Colin Drury
© 2004 Colin Drury

2.2a
Categories of Manufacturing Costs
• Traditional cost systems accumulate product costs as follows:
Direct materials
Direct labour
Prime cost
Manufacturing overhead
Total manufacturing cost
Non-manufacturing overheads
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