Programmed costs

The following definition of terms with corresponding examples result help us fully understand the meaning of be. A equal whitethorn be broadly defined as being the sacrifice required to earn a given object or objective. If appeal argon to be identified with some pertinent building block, such as a department, result line or given amount of service, it is inevitable to determine how be can be expect to behave under different conditions. For example, which be can be expected to remain constant when there argon profits or decreases in the amount of work done?Also, which follows increase as more work is performed? If equals ar to be estimated and controlled properly, it is necessary to know whether or not the exist can be expected to substitute under given conditions and, if so, by what amount. In accounting, fixed costs refer to the costs that do not change in join amount with changes in volume of output or activity over an established or relevant range. Such items a s salary of define of a coiffe superintendent, depreciation, insurance, taxes, and rent usually remain the same ir look uponfulnessive of whether the plant is above or below its normal operating capacity.However, a fixed cost, like any cost, is subject to certain variations. Rent may increase or insurance rates go up, but these changes argon caused by factors independent of the firms operating level. Fixed costs be some ages classified as being either connected costs or programmed costs. Management, in making long-range decisions, may contribute a company to a cost pattern that extends several long time in the future. For example, when a building is acquired, future yrs have to plight the depreciation cost and the related property tax, insurance, repairs, and maintenance.These fixed costs are committed costs. Programmed costs, also referred to as managed costs or discretionary costs, are determined as a part of general management policy. A budget for product research and dev elopment, for example, may be established distributively year or supervisory salaries are set each year by management decisions. These costs are established at a certain fixed amount, but the amount is determined by management. uncertain costs are costs that vary in direct proportion, or in a one-to-one relationship, to changes in productive output or activity.For example, direct material cost is usually a variable cost with each unit manufactured requiring a certain quantity of material. Thus, the materials cost changes in direct proportion to the number of units manufactured. Irrelevant cost is a cost that will not be changed by a decision. Because an impertinent cost will not be affected, it may be cut in the decision-making process. The cost may be variable cost or a fixed cost . The important point is that the cost is not changed by the decision.If the decision involves the production of more units of product, variable are change magnitude and are not irrelevant costs. On the other hand, if no change in productive output or hours of activity is involved in the decision, the variable cost may not be affected, in which chance they are disregarded with respect to the decision. costs can also be classified as being direct or indirect with respect to an activity, a department, or a product. The distinction depends upon whether or not the cost can be identified with the activity or other relevant unit without allocation.A cost such as the plant superintendents salary can be readily identified with the plant and thus is a direct cost of the plant. However, it is an indirect cost of any department within the plant or of any line of product manufactured. The plant superintendents salary cannot be identified with any unit within the plant except by allocation. A sink cost is a cost that has already been incurred in the past whose total will not be affected by any decision make now or in the future.Example, an individual may regret having do a purchase but, after the purchase have been made, cannot avoid the cost by taking subsequent action. Perhaps the property can be sold, in which case the cost of the property is matched against the proceeds from the sale in the determination of gain or loss. Or the person may judge to keep the property, in which case the cost is matched against revenue over the time that it is used in operations. In any event, the cost has been incurred and cannot be avoided.It is sunk cost with respect to present and future decisions. Another important reflection of cost to be considered is the distinction between cost that can be controlled by a given person and those that cannot be controlled by that person. Cost are incurred upon the authorization of some member of the management group. If a music director is responsible for a given cost, that cost is give tongue to to be controllable with respect to that person. If the manager does not authorize that cost, the cost is uncontrollable with respect to that manager.For example, top management can increase or decrease executive director salaries and can initiate or abandon major projects. At ordinary or at lower management levels, such cost are beyond their authority and are uncontrollable. Costs that can be authorise at a certain managerial level are said to be controllable at that level. REFERENCES Blocher, E et al. (2005). Cost Management A strategic emphasis. Boston Mcgraw-Hill/ Irwin. Edmonds Tet al. (2006). Fundamental managerial accounting concepts. (3rd ed). refreshing York Mcgraw-Hill/ Irwin.