1. Cost Classification Flashcards
What are cost objects?
Any object to which a cost can be attached
Name and give an example of 3 types of cost objects
- Tangible items such as raw materials
- Time-based costs such as labour or machine hours
- Activities or events such as inspections
What is cost classification?
The grouping of similar cost objects
Name the types of cost classifications
- Direct Costs
- Indirect production overheads
- Indirect non-production overheads
What do direct costs include?
- Direct materials such as ingredients
- Direct labour such as people working
- Direct expenses such as machinery or manufacturing
What do indirect production overheads include?
- these are factory costs that are not directly attributable to products
- includes indirect materials such as cleaning materials and personal protective equipment
- indirect labour such as wages involved in production but not directly
- indirect expenses such as rent, lighting and heat
What do indirect non-production overheads include?
- administrative expenses such as manager salaries
- selling and distribution expenses such as salaries of sales staff
- financial charges such as bank charges and taxes
How is the full cost of products broken down?
- Full cost of products is broken down into full production cost and indirect non-production overheads
- full production cost is then broken down into prime costs and indirect production overheads
- prime costs are broken down into direct materials, direct labour, and direct expenses
What are direct costs also known as?
Prime costs
What 3 things are classified as prime costs?
- direct materials
- direct labour
- direct expenses
What is added to prime costs to make up the full production cost?
Indirect production overheads
Draw the diagram for the full cost of products broken down
(direct materials + labour + expenses) + (prime costs + indirect production overheads) + (full production cost + indirect non-production overheads) = full cost
