Question

Costs are also in the eye of the beholder. For example, to Marriott International, each hotel is a variable cost as it can be open or closed and few costs are fixed. To the manager of each hotel, most costs, though, are fixed with the only variable/controllable costs being related to guest services, food, and housekeeping. The change in perspective can change how we look at costs. Management as well as maintenance is viewed as a fixed cost from this perspective.

Should internal and external numbers be looked at the same by managers?

Answer 1

Costs are classified on the basis of various elements. Such as - Nature of expense, relation to cost object, cost function, cost behavior, specific purpose and time. Relative terms are also seen; such as, controllability, normalty, planning and control etc.

Should internal and external numbers be looked at the same by managers?

No. Costing Principles do not permit assuming the costs in the way people perceive. This also falls under Accounting Standards which forbid recording costs in other manner than what is specified in the rule book.

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