1. Intro to cost accounting

Question 1

The three elements of cost are ?

Manufacturing and Service businesses

Answer 1

Materials
Labour
Expenses

Question 2

Classify costs by element :

Answer 2

Materials
Labour
Expenses

Question 3

Classify costs by nature:

Answer 3

Direct (can be identified directly with each unit of output)

Indirect (overheads. Cannot be directly identified with each unit of output)

Total of all direct costs is called the prime cost of the output.

Question 4

Steps to calculate the cost of goods and services?

Answer 4

1. Identify unit of output.
2. Calculate the number of units of output for a particular period.
3. Calculate direct costs for that period (prime cost)(inc.mat,lab,exp)
4. Calculate the indirect costs for that period (production overheads).
5. Calculate the total cost of a unit of output.

(Direct+Indirect) / Units = Total cost per unit of output.

Question 5

Classify costs by function:

Answer 5

Production
Administration
Selling and distribution
Finance

Question 6

Classify costs by behaviour:

Answer 6

Fixed (eg. Rent) … Typically do not vary with Qty ….but may be stepped eg. At some point need more space.

Semi-variable (eg. Telephone bill)

Variable (eg. Direct materials; direct labour, direct expenses such as royalties) .. may get economies of scale though eg. Bulk discount.

Question 7

Reason to classify costs ?

CPD

Answer 7

Identifying savings

Decision making, when implementing changes

Planning, when preparing forecasts and budgets

Control, when checking results against what was planned

Question 8

Total Cost Statement layout

Answer 8

Direct costs (direct materials; d. labour; d. expenses)
Equals PRIME COST
Add Production overheads
Equals PRODUCTION COST *
Add Non-production overheads ** (S & D , admin, finance)
Equals TOTAL COST

• product cost - the costs that become part of the manufactured product and are included in the closing inventory of the product at year end and are carried forward to the next financial year.

** period costs - the costs that are not part of the manufactured product and cannot be assigned to products or closing inventory. Period costs are expensed to the SPL in the accounting period incurred.

Question 9

Classify behaviour:

Straight line depreciation.

Answer 9

Fixed

Question 10

Classify behaviour:

Units of output depreciation

Answer 10

Variable

Question 11

Classify behaviour:

Direct labour eg. Piecework

Answer 11

Variable

Question 12

Classify behaviour:

Indirect labour eg. Supervisor salary

Answer 12

Fixed

Question 13

Classify behaviour:

Commission paid to sales staff

Answer 13

Variable

Question 14

Composite cost units comprise …?

Answer 14

More than 1 variable

Eg cost of hospital patient, per day.

Question 15

Responsibility centres are segments of a biz for which a manager is accountable

Answer 15

Eg. Cost centres; profit centres; investment centres; revenue centres

Question 16

As well as charging costs to units they also need to be charged to a specific part of the biz - a cost centre

Answer 16

Cost centres are segments of a business to which costs can be charged.

Question 17

What do cost centres enable

Answer 17

Enable segmented costs - which relate to a centre (eg a factory, or a stage in the production process) to be identified.

This helps control.

Question 18

For investment centres

Answer 18

Segments of the biz where profit is compared with the amount of money invested in the centre.

Profit/investment * 100 = ROI

Question 19

Revenue centres

Answer 19

Segments of a biz where sales rev is measured.

Eg shop department, coffee shop

Question 20

Remember when thinking of cost classification by element, nature, function, behaviour ….

Answer 20

Each cost has multiple classifications

Question 21

Total cost is also known as absorption cost

Answer 21

.