Explain the Difference Between Locked in Costs and Costs Incurred

question 140

Essay

Explain the difference between locked in costs and costs incurred. Which of these types of costs does a traditional accounting system emphasize? At which stage of the value chain are most costs locked-in? At which stage of the value chain are most costs incurred? What implication does this have for good cost management?

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Definitions:

Schedule Of Cash Collections

A detailed plan that shows when a company expects to receive cash from accounts receivable or other revenue sources.

Direct Labor Budget

A direct labor budget is a financial plan that estimates the total cost of direct labor required to meet the production needs of a business.

Direct Labor-hours

The total hours worked directly on the production of goods.

Merchandise Purchases Budget

A detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period.