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Textile Costing · Lecture 05
Managerial Accounting – Introduction
Cost objects, cost accumulation and assignment, and the difference between direct and indirect cost.
Cost objectDirect costIndirect cost
From keeping records to making decisions
Financial accounting looks backwards and outwards — it reports to owners, banks and the tax authority. Managerial accounting looks inwards: it measures the cost of the things managers decide about. Five words carry the whole subject.
- Cost object
- A product, machine, service or process for which a separate measurement of cost is desired — a lot of fabric, a loom, a dyeing route, a customer order.
- Cost accumulation
- Collecting cost data in some organised way (by department, by machine, by account).
- Cost assignment
- Tracing and allocating the accumulated cost to the cost object.
- Direct cost
- A cost related to the cost object that can be traced to it in an economically feasible way — the grey fabric in a dyeing lot, the yarn in a beam.
- Indirect cost
- A cost related to the cost object that cannot be traced economically and is therefore allocated — electricity, supervision, depreciation of the shed.
The same cost can be direct for one object and indirect for another. The salary of a loom-shed supervisor is direct to the weaving department but indirect to any single order woven there. Whenever a figure looks “obvious”, ask: traced or allocated?
In class the concepts of the first four lectures were reviewed alongside these definitions; the next lecture puts them to work in unit costing.
Classify these textile costs
| Cost | Cost object: one dyeing order | Cost object: the dyeing department |
|---|---|---|
| Grey fabric issued to the order | Direct | Direct |
| Dyes weighed for the shade | Direct | Direct |
| Steam for the whole plant | Indirect (allocated per metre) | Indirect (allocated per department) |
| Dyeing manager’s salary | Indirect | Direct |
| Depreciation of the pad-steam range | Indirect (allocated per machine-hour) | Direct |