1.1 Importance Of Costing & Cost Classification

Question 1

What is a cost object

Answer 1

Any activity for which a separate measurement of cost is required
E.g. cost of making a product or providing a service

Question 2

Manufacturing costs vs non manufacturing costs

Answer 2

Manufacturing = within factory
E.g direct materials, direct labour

Non manufacturing costs = admin, research

Question 3

Variable costs

Answer 3

Vary in proportion with activity

Question 4

Fixed cost

Answer 4

Remains constant over wide ranges of activity

Question 5

Stepped fixed cost

Answer 5

Fixed within specificied activity levels but eventually increase or decrease by some constant amount of critical levels

Question 6

Semi variable costs

Answer 6

Sometimes fixed sometimes variable

E.g phone bill

Question 7

Direct costs

Answer 7

Specifically and exclusively identified with given cost object (materials, labour)
In terms of a loaf of bread ( flour, yeast, salt)

Question 8

Indirect costs

Answer 8

Don’t directly relate but necessary (overheads)

For a loaf of bread ( heat, electricity, equipment depreciation)

Question 9

Absorption costing

Answer 9

Budgeted overheads / Budgeted production = budgeted overhead absorbing rate + direct costs = total cost