Programmed costs

The following definition of terms with corresponding examples leave behind help us fully infrastand the meaning of make ups. A approach may be broadly defined as universe the collapse required to obtain a given object or objective. If salute be to be set with some relevant unit, such(prenominal) as a department, product annotation or given amount of service, it is required to determine how prices groundwork be expected to be adjudge under different conditions. For example, which equals notify be expected to lie never-ending when there are increases or decreases in the amount of work through?Also, which costs increase as more work is performed? If costs are to be estimated and controlled properly, it is necessary to know whether or not the cost gutter be expected to diversity under given conditions and, if so, by what amount. In accounting, repair costs refer to the costs that do not change in total amount with changes in volume of output or bodily process over an accomplished or relevant range. Such items as salary of institute of a plant superintendent, depreciation, insurance, taxes, and rent usually remain the same regardless of whether the plant is above or below its linguistic rule operational capacity.However, a fixed cost, like every cost, is subject to sure variations. Rent may increase or insurance rates go up, but these changes are caused by factors independent of the firms operating level. Fixed costs are sometimes classified as being either committed costs or programmed costs. Management, in making long decisions, may commit a company to a cost innovation that extends several age in the future. For example, when a building is acquired, future years have to absorb the depreciation cost and the related space tax, insurance, repairs, and maintenance.These fixed costs are committed costs. Programmed costs, also referred to as managed costs or discretionary costs, are inflexible as a part of command guidance policy. A b udget for product research and development, for example, may be established each year or supervisory salaries are mess each year by management decisions. These costs are established at a sure fixed amount, but the amount is determined by management. Variable costs are costs that vary in direct proportion, or in a one-to-one relationship, to changes in cultivable output or activity.For example, direct material cost is usually a variant quantity 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. inappropriate cost is a cost that will not be changed by a decision. Because an irrelevant cost will not be affected, it may be disregarded in the decision-making process. The cost may be variable cost or a fixed cost . The important mastermind is that the cost is not changed by the decision.If the decision involves the production of more units of product, variable are incr eased and are not irrelevant costs. On the some 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 case they are disregarded with respect to the decision. damages 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 identify 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 hence 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 sunk cost is a cost that has already been incurred in the ult whose total will not be affected by any decision made now or in the future.Example, an indivi dual may regret having made 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 publication from the sale in the determination of gain or loss. Or the individual may decide 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(prenominal) important aspect 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 manager is responsible for a given cost, that cost is tell to be controllable with respect to that person. If the manager does not authorize that cost, the cos t is uncontrollable with respect to that manager.For example, top management can increase or decrease executive salaries and can initiate or abandon study projects. At intermediate or at lower management levels, such cost are beyond their authority and are uncontrollable. Costs that can be authorized 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). New York Mcgraw-Hill/ Irwin.