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Cost Accounting Videos 27 videos

Cost Accounting: What is a Cost: Cost Versus Expense?
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What is a Cost: Cost Versus Expense? Cost and expense are pretty similar terms when looking at traditional definitions but they’re a little diffe...

Cost Accounting: How Can Unit Fixed Costs Mislead the Misled?
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How can unit fixed costs mislead the misled? Unit fixed costs can be misleading because the fixed cost per unit decreases as production increases;...

Cost Accounting: What Is Differential Analysis?
2 Views

What is Differential Analysis? Differential analysis is a strategy used to make the best decision. Possible choices are compared to determine which...

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Cost Accounting: What is a Cost Driver? 4 Views


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00:00

and finance Allah shmoop What is a cost driver Old

00:07

All right people to be ableto fix something you need

00:09

to know what's wrong with it first right That's the

00:11

point of a cost driver I'LL think about an actual

00:15

driver You're on the highway and suddenly you hear a

00:17

loud crunch from underneath the car The car skids to

00:20

a halt smoke pouring out from under the hood Yeah

00:23

well engines air complicated things The mechanic has to be

00:26

able to identify what specific part broke so he can

00:29

fix it Otherwise every time you hear a rattle well

00:32

you have to ditch the entire engine and start over

00:34

Well the term cost driver can get used a couple

00:37

of different ways In one sense it refers to any

00:39

expense that contributes to the production of a company's product

00:42

Will cost drivers in this context or used to identify

00:45

specific items in a production process that contribute to the

00:48

expense of making that item Cost driver also gets used

00:53

to refer to the main expenses a product or at

00:56

least a handful of expenses that matter most well The

00:59

goal is to identify the most significant contributors to the

01:02

overall cost You own a cow candy bar factory to

01:05

make the bars you've incurred a series of expenses Well

01:09

there are the ingredients you know like a cow which

01:12

makes chocolate You got sugar and milk and nuts and

01:15

caramel You've also got the labor like the people actually

01:18

working the industrial mixing vat or driving stuff around on

01:22

forklifts And you've got things like kill the energy needed

01:25

to run all the machinery and heat up all the

01:27

sugar and chocolate and stuff and the cost of cleaning

01:30

all the mixing equipment After your employees lick the excess

01:33

you know gooey stuff off the mixing bowl thing Well

01:36

each item the chocolate to sugar the nuts the labor

01:39

the energy the cleaning all count as cost drivers They're

01:42

all drivers of the cost of making a candy bar

01:45

But you Khun drill down further to find the expenses

01:48

that really matter Like say that the sugar in that

01:51

candy bar makes up forty percent of the cost of

01:54

producing that candy bar Well that makes it the main

01:57

cost driver for that product That candy bar Well the

02:00

cost of the chocolate might go up but it doesn't

02:03

really matter because well that Takao is only five percent

02:06

of the total cost of that candy bar But if

02:08

the cost of sugar goes up well that could really

02:11

hurt the bottom line Well individual cost drivers can include

02:14

many distinct categories of expenses Labor utilities transportation insurance raw

02:18

materials advertising interest expenses complimentary raw oyster bar for the

02:23

break room Any of these things can become cost drivers

02:26

Well you Khun further categorise these cost drivers into what

02:29

are called cost pool's think animals Cost drivers are like

02:33

individual species Draft for Angela's and hammerhead sharks Cost pools

02:38

are like the broader animal classes like mammals a racket

02:43

IDs and fish So electricity water an Internet costs or

02:47

connectivity costs are each potential cost drivers But you can

02:50

also group them together in cost fools of utilities Identifying

02:55

cost drivers allows companies to find ways to maximize profitability

02:59

well back to the candy bar Since sugar makes up

03:02

forty percent of the cost of these candy bars well

03:04

if you can lower the cost of that sugar you

03:06

could really increase profits You could change your recipe maybe

03:09

to use less sugar and more chocolate which would lower

03:12

your dependence on sugar Or you can replace sugar with

03:15

a substitute like a sweetener You know one of your

03:18

scientists cooked up in a lab if that sweetener is

03:20

cheaper than sugar well maybe you've just significantly lowered your

03:24

expenses but you only know to focus on lowering sugar

03:27

costs because you did the work to find out that

03:29

sugar was in fact your primary costs driver Will companies

03:33

track expenses as closely as possible to give category separate

03:36

in order to make these determinations like say you discover

03:39

that the chocolate your employees have been licking off the

03:42

equipment really leads to a big drop in inventory So

03:46

you put in place a zero licking policy enforced by

03:49

electrodes in the equipment They give a little discouraging shock

03:53

when they come into contact with the human tongue Electrocution 00:03:56.56 --> [endTime] or no chocolate life is full of tough decisions

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