{"id":94,"date":"2015-06-25T21:57:36","date_gmt":"2015-06-25T21:57:36","guid":{"rendered":"https:\/\/courses.candelalearning.com\/managacct2x10xmaster\/?post_type=chapter&p=94"},"modified":"2016-01-05T21:35:35","modified_gmt":"2016-01-05T21:35:35","slug":"cost-classifications-used-for-planning-and-control","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-managacct\/chapter\/cost-classifications-used-for-planning-and-control\/","title":{"raw":"1.4 Cost Classifications Used for Planning and Control","rendered":"1.4 Cost Classifications Used for Planning and Control"},"content":{"raw":"
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\r\n\r\nIn this course, we will cover many cost classifications useful for planning and control.\u00a0 We will introduce the basic concepts behind these classifications but you will use them (and get in greater depth) in other chapters.\r\n\r\n1.\u00a0 Fixed vs Variable Costs.<\/strong>\r\n\r\nA fixed cost remains the same in total but changes per unit<\/strong>.\u00a0 Fixed costs examples include your monthly rent, salaried employees, straight-line depreciation as these amounts do not change based on volume.\u00a0 A variable cost remains the same per unit but changes in total.<\/strong>\u00a0 Variable cost examples include sales commissions, hourly workers, units-of-production method depreciation as these amounts will change based on total volume but the amount charged per unit does not change.\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\nhttps:\/\/youtu.be\/RIYN2F6fW2Y\r\n\r\n<\/div>\r\n2.\u00a0 Direct vs Indirect Costs.<\/strong>\r\n\r\nA direct cost is an amount that can be traced to a specific department, process or job.\u00a0 Direct costs can be product costs like direct materials or direct labor or they can be period costs like an accountant's salary would be traced to the accounting department.\u00a0 Indirect costs is an amount that cannot be traced to a specific department, process or job.\u00a0 These costs are typically allocated (or estimated) to the departments, processes or jobs using those items.\u00a0 Indirect costs can be product costs like overhead or period costs like an IT employee's salary to the sales department.\u00a0 The sales department needs the services provided by IT and the IT employee's time would be an indirect expense to the sales department.\r\n\r\nHere is a video that provides a real world example of the differences between direct and indirect costs (focus on the first 2 minutes of the video):\r\n\r\nhttps:\/\/youtu.be\/NTEwMcXZ-0o\r\n\r\n3.\u00a0 Controllable vs Non-controllable Costs.<\/strong>\r\n\r\nWhen evaluating the performance of an executive or manager under managerial accounting, it is helpful to recognize that some costs and expenses may be out of the control of that manager or executive.\u00a0 One example is the the manager's salary.\u00a0 The manager has no control over his own salary and has no power to change or stay within the budget for the salary.\u00a0 Controllable costs are things the executive, manager, or department even can control or change.\u00a0 If the executive, manager or department cannot change or control the cost, it is an uncontrollable cost.\u00a0 An example of an uncontrollable cost would be an allocation of administrative expenses to each job or department.\r\n\r\nhttps:\/\/youtu.be\/HKJjov8i3RU\r\n\r\n4.\u00a0 Differential Costs including Sunk and Opportunity Costs.<\/strong>\r\n\r\nDifferential Costs represent the difference between two alternatives.\u00a0 We will analyze what is relevant to our decision making including any opportunity costs.\u00a0 Opportunity costs are what you give up by choosing one alternative over another (think about what you are giving up by taking this course -- what else could you be doing?).\u00a0 Sunk costs are not relevant for decision making as the cost cannot be recovered at a later date.\u00a0 Watch this video to get a better idea of these concepts.\r\n\r\nhttps:\/\/youtu.be\/ZtATVI1Oeyo","rendered":"
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In this course, we will cover many cost classifications useful for planning and control.\u00a0 We will introduce the basic concepts behind these classifications but you will use them (and get in greater depth) in other chapters.<\/p>\n

1.\u00a0 Fixed vs Variable Costs.<\/strong><\/p>\n

A fixed cost remains the same in total but changes per unit<\/strong>.\u00a0 Fixed costs examples include your monthly rent, salaried employees, straight-line depreciation as these amounts do not change based on volume.\u00a0 A variable cost remains the same per unit but changes in total.<\/strong>\u00a0 Variable cost examples include sales commissions, hourly workers, units-of-production method depreciation as these amounts will change based on total volume but the amount charged per unit does not change.<\/p>\n<\/div>\n<\/div>\n<\/div>\n