SPA 1

Hey guys, haven't had much time to breathe lately. Assignments everywhere.
Anyhow here's my SPA in which I have to say I didn't get the grade I expected or wanted. I am open to critics. Please, give me your feedback and help me to find out what I have done wrong because I honestly still haven't understood how to do this the right way.

SPA 1- Chapter 6.

Chapter 6 was about understanding key cost relationships. At first glance I thought it shouldn’t be that difficult since costs are supposed to be simple and not complicated, but reading throughout the chapter I learned more about costs and the fact that they’re not as simple as they may seem.

There was a quote there by Jean Shepherds that I did not quite understand.
“I’ve met them down in the Cost and Accounting Department, clean-shaven and in white collars. They can’t see a damn thing ridiculous about themselves... only about you.”

Who are them exactly, the accountants and employees of that department? Why are they supposed to be ridiculous? I find it difficult to relate it to the rest of the text.

In the beginning I even found it difficult to concentrate but later on I started to understand more. I did learn the definition of how costs include not only money and resource but general value leaving the firm. I think one of the most important things in the chapter is the key way to assist managers to understand costs, because in order to analyse something and relate it to something else you have to firstly understand it.

I also managed to understand how even if you attach the costs to the cost objects they still can be confusing and messy so you need to be concentrated and smart not to get so easily confused.

Reading the title ‘Products as cost objects’ also confused me. The first thing that popped in my mind was a question: Aren’t products supposed to represent revenue and not an expense (or a cost)? But apparently as everything in accounting products are very tightly related to cost. They are themselves cost objects. My understanding is that when the firm buys the products (supplies) they become inventory. At this point they are a cost that is expected to bring future benefits. So they are cost objects. Once they are sold they become revenue.

I realised that you really need to be careful with the firms profit because otherwise misunderstandings like overstating or understating can happen and they may create a mess it would be difficult to get out of.

I have to admit I had no idea there were various kinds of costs, such as direct and indirect ones and the figure did not help much, but I started understanding when I read it.

A random thought at this point was: Why not just call it one name such as indirect cost but also call it overhead cost?

It got a bit boring at the point when it started counting businesses and I lost my concentration so I simply read through them without really ‘reading’, but at the last paragraph I got the point. Our countries economies are service economies meaning the firms create products that we can see and understand.

My brain definitely needed the extra explanation on indirect costs. It is easier to understand when it is explained with actual examples. Not completely maybe, but I understood how direct & indirect costs really work and how indirect costs can be the electricity bills or the maintenance of the factories. Also I got to learn how Cadbury chocolates are made. I have to admit you had my full attention at the mention of the word ‘chocolate’.

I also understood that there can be period and product costs. Period costs can be seen as expense when the products are incurred and product costs are seen as expense only after the products are sold. But I can’t really understand how do you decide which are included in the product costs and which in the period one? Isn’t this a bit complicated and wouldn’t it be easier to do the same thing for all the products, like either seeing all of them as expense when they are sold or when they are incurred?

I completely agree with Brian Plowman’s words. Indirect costs seem indeed like the black hole to me.

What does apportion exactly mean? I googled it and it is explained as 1.divide up and share out and 2.assign. I find it difficult to wrap my head around how products and service departments are related to each other through apportion.

The financial-based costing systems were easier than I thought. The cost and the profit as always are related to the activity. This is also connected to variable costs. They were very clearly explained. Costs may change according to the activity that occurs. Nothing in business is precise or fixed (except maybe one or two things) and I do understand that now. It was really helpful how it was explained so clearly with Martin’s son’s band and their gigs. It’s amazing how when put in relation to a simple example a very complicated thing can become easy to understand. I also found it easy to understand the mathematical equations. Finally I am learning something in accounting that is connected to math!!

 Key Concepts:

Ø  Costs are money, resources and value leaving the firm.

Ø  Attaching a firm’s costs to various cost objects is the main way to help managers understand costs.

Ø  Managers really need to be careful, smart and very concentrated to separate different kinds of costs and to understand them.

Ø  Our countries economies are service economies meaning the firms create products that we can see and understand.

Ø  Different types of costs: Direct and indirect costs.

Ø  Costs may change according to the activity that occurs.

Questions:

Ø  What does Jean Shepherd’s quote really mean?

Ø  Why not just call it one name such as indirect cost but also call it overhead cost?

Ø  How do you decide which costs will be period and which will be product costs?

Ø  What is apportion and how is it related to product and service departments?

Ø  What are Caveats?

And here's a random cute baby just because :