Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Management Accounting > 2. Cost Classification (p23) > Flashcards

2. Cost Classification (p23) Flashcards

1
Q

What is responsibility accounting?

A

Identifying individual parts of a business that are the sole responsibility of a single manager.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a responsibility centre?

A

An individual part of a business whose manager has personal responsibility for its performance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is a cost centre?

A
  • A location, function, activity or equipment related to production or service where it’s costs are identified and recorded.
  • Only costs, not revenues, are recorded
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What information do cost centre managers need?

A

Costs incurred and charged to their cost centres.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How is the performance of a cost centre manager determined?

A

The extent to which cost targets have been achieved.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is a revenue centre?

A
  • Part of the organization that earns a sales revenue.
  • Only revenues, not costs, are recorded
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Why must revenues be able to be traced back to individual revenue centres?

A

So that the performance of individual revenue centre managers can be assessed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is a profit centre?

A

Part of the organisation for which both costs incurred and revenues are identified.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Where are profit centres often found?

A

In large organisations with divisionalised structures and each division is treated as a profit centre.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What could a profit centre be made up of?

A

Several cost centres and revenue centres.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How is the performance of a profit centre manager measured?

A

By the profit made by the centre.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is a profit centre manager responsible for?

A

Both the costs and revenues of the centre.
They must be able to plan and control both.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is an investment centre?

A

Part of the organisation responsible for investment decisions, and decisions affecting costs and revenues.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are investment centre managers responsible for?

A

The performance of capital employed and profits (costs and revenues)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How is the performance of investment centres measured?

A

By the return on capital employed (ROCE).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the return on capital employed?

A

Profit earned relative to capital invested.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are cost objectives?

A

Any activity where associated costs are measured separately.
E.g.
- Cost of a product
- Cost of a service
- Cost of running a department
- Cost of running a regional office

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is a cost unit?

A

A unit of product or service from which costs are ascertained.
E.g.
- Cost per room (hotel)
- Cost per liter of paint
- Cost per patient (hospital)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is a cost card?

A

Shows the breakdown of the different costs of producing output (output being either one unit or a planned level of production).

20
Q

What are some types of costs that can make up a cost card?

A
  • Direct materials
  • Direct labour
  • Direct expenses
  • Prime cost (total direct costs)
  • Variable production overheads
  • Fixed production overheads
  • Non-production overheads
21
Q

What cost summaries might managers need?

A
  • Cost for a product (Cost unit or cost object)
  • Cost for use in the preparation of external financial reports
  • Cost for a particular department (cost centre)
  • Costs to be used in decision making
  • Costs useful for planning and control
22
Q

What 4 ways might costs be classified?

A
  • Element
  • Nature
  • Function
  • Behaviour
23
Q

What does is mean to classify cost costs by element?

A

Whether they relate to material, labour or expenses.

24
Q

What does is mean to classify cost costs by nature?

A

How they relate to production.

(Are they directly or indirectly involved in the production of the product/service)

Useful for cost accounting.

25
Q

What does is mean to classify cost costs by function?

A

Whether they are production or non-production costs.

Useful for financial accounts.

26
Q

What does is mean to classify cost costs by behaviour?

A

How costs change in relation to levels of output or activity.

Useful for budgeting and decision making.

27
Q

What are material costs?

A

The cost of all materials purchased for production or non-production activities.

(E.g. raw materials, components, cleaning materials, maintenance materials, stationary)

28
Q

What are labour costs?

A

Staff costs relating to employees on the payroll of the organisation.

29
Q

What are expenses? (classification by element)

A

All costs that are not materials or labour.

(E.g. rent, telephone, subcontractors, depreciation)

30
Q

What are direct costs?

A

Costs that can be directly identified with a specific cost unit or cost centre.

31
Q

What are the three main types of direct costs?

A
  • Direct materials
  • Direct labour
  • Direct expenses
32
Q

What are prime costs?

A

The total of all direct costs.

33
Q

What are indirect costs?

A

Costs that can’t be directly identified with a specific cost unit or centre.

34
Q

What are overheads?

A

The total of all indirect costs.

35
Q

What are production costs?

A

Costs that relate to manufacture of a product or provision of a service.

Included in valuation of inventory

36
Q

What are some examples of production costs?

A
  • Direct materials
  • Direct labour
  • Direct expenses
  • Variable production overheads
  • Fixed production overheads
37
Q

What are non-production costs?

A

Costs not directly associated with the production of business output.

Not included in valuation of inventory

38
Q

What are some examples of non-production costs?

A
  • Administrative costs
  • Selling costs
  • Distribution costs
  • Finance costs
39
Q

Where are production and non-production costs charged to on the P&L?

A

Production
Cost of sales

Non-production
Expenses

40
Q

What are the four ways in which you can classify costs by behaviour?

A
  • Variable costs
  • Fixed costs
  • Stepped fixed costs
  • Semi-variable costs
41
Q

What are variable costs?

A

Costs that vary in direct proportion to the level of activity.

  • Changes in total
  • Fixed per unit
42
Q

How does the variable cost per unit change as activity increases?

A

It remains the same.

43
Q

When might variable costs not change in direct proportion to activity?

A

If discounts are applied to high volume purchases.

44
Q

What are fixed costs?

A

Costs that remain constant within certain activity levels for an accounting period.

  • Constant in total
  • Change per unit
45
Q

How does the fixed cost per unit change as activity level increases?

A

It decreases logarithmically.

46
Q

What are stepped fixed costs?

A

A cost that is only fixed within a certain level of activity.

(Once a certain level of activity is reached, a new fixed cost becomes relevant)
- Constant in total within a certain range
- Changes per unit

47
Q

What are semi-variable costs?

A

A cost that contains a mix of fixed and variable costs.

(Eg telephone bills have fixed line rental plus cost per call)
- Changes in total
- Changes per unit

Management Accounting (18 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions