Management and Cost Accounting - Doc

Running head: MANAGEMENT ACCOUNTING
Management accounting
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1MANAGEMENT ACCOUNTING
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................3
Answer 3....................................................................................................................................5
Reference....................................................................................................................................7

2MANAGEMENT ACCOUNTING
Answer 1
Identification and explanation of cost classification –
Cost can be segregated based on the level of traceability of the cost object that is a
project, a product and a department into the below mentioned types –
 Direct cost
 Indirect cost
Direct cost –
Costs those are easily recognizable or identifiable to the cost objects are called as
direct cost. If the project is cost objects, then the direct cost signifies the resources and costs
that are traceable or recognizable with the project (Drury, 2013). The direct cost examples are
direct labour, direct material and direct overheads.
Indirect cost –
Costs that cannot be identified or traced with the cost object are known as indirect
costs. For example, in case of Flower Finesse Company costs of administration staff, sales
office and salary of the manager will be regarded as indirect cost as these costs are not
directly related to the product and related to the production as well as administration and
sales (Parambath, Usunier & Grandvalet, 2014).
Classification of cost is crucial as the overhead expenses cannot be identified to the
product it creates issues while the cost is analysed and determined. Further the apportionment
of the indirect cost needs application of the judgements on account of the cost. The indirect
costs are traceable only through allocation in logical manner. Any cost can be indirect or