2. Costing Flashcards
What is a cost object?
Anything for which cost data is desired, eg products, jobs.
What is a cost unit?
A unit of product or service in relation to which costs may be ascertained.
What is a cost centre?
A function or location for which costs are ascertained and related to.
Name and describe 2 types of cost centres.
Production cost centre - Those which are actively involved in the production process.
Service cost centre - Provide a service or back-up to the production departments.
What is cost classification, give the 3 ways to classify cost.
Classification by nature
Classification by function
Classification by behavior
How do you find total production cost?
Total production cost = Prime Cost + Production Overheads
What is prime cost?
The total of all direct production cost
What are direct costs?
The cost of all material becoming part of the product, packaging materials, all overtime or basic hours or overtime expended on the project itself. Usually the cost object will be a cost unit and therefore direct costs can be attributed in full to a particular unit of production.
What are production overheads?
Those costs which are incurred in the cost of making a product/service which cannot be identified with a particular cost object. They are difficult to identify as they are usually spent in relation to a number of units.
What is historic cost?
The original cost of an asset to the organisation.
What is economic value in measuring assets?
The most someone is willing to pay for the asset.
What are the four categories used to classify and manage environmental costs?
Prevention - prevent the production of waste that can harm the environment.
Appraisal - cost incurred to assess whether a firms activities comply with environmental laws and standards
Internal failure - Cost after waste has been produced but not discharged into the environment
External failure cost - Incurred after waste has been discharged into the environment
What is relevant cost and what is it sometimes known as?
Relevant cost, is a future incremental cash flow arising as a direct consequence of a decision. Sometimes called avoidable cost.
What are incremental or differential costs?
The increase (only) in costs and revenue that occur as the result of a decision.
What are investment centres?
Profit centres with additional responsibility for capital investment and possibly for financing
