2 - Costing Flashcards

1
Q

what is a cost object

A

anything for which cost data is desired
eg, products, product lines, jobs, customers or departments and divisions of a company

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2
Q

what is a cost unit

A

a unit of product or service in relation to which costs may be ascertained

should be appropriate to type of business
eg audit firm trying to cost a complete audit or one chargeable hour

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3
Q

what is a cost centre

A

a function or location for which costs are ascertained and related to cost units for control purposes

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4
Q

what are production/service cost centres

A

PRODUCTION = those actively involved in production process
SERVICE = provide a service or backup to production departments

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5
Q

what is cost classification

A

arrangement of costs into logical groups eg:
- classification by nature, eg materials/wages
- classification by function, eg admin or production
- classification by behaviour or responsibility

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6
Q

what are direct costs

A

costs which can be specifically identified with and allocated to a particular cost object

usually cost object will be a cost unit and therefore direct costs can be attributed in full to a particular unit of production

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7
Q

what are prime costs

A

the total of all direct production costs

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8
Q

what are direct materials/labour/expenses

A

include all material becoming part of the product, including packing material

direct labour is all basic hours or overtime on work, including altering the condition, conformation or composition

direct expenses = any expenses incurred on specific product OTHER THAN direct material cost and direct wages

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9
Q

what are indirect production costs

A

those costs which are incurred in the course of making a product/service but which cant be identified with a particular cost object (usually a cost unit)

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10
Q

examples of all materials/labour/expenses

A

DIRECT:
- labour = wages paid to manufacturing workers or hairdressers in a hair salon
- materials = incorporated into finished product eg wood used for table
- expenses = identifiable with each unit eg patent royalties payable to inventor of new item

INDIRECT:
- labour = wages of other staff eg supervisors, storekeepers and maintenance workers
- materials = used in production but not final product eg machine lubricants and spare parts
- expenses = not spent on individual units of production, eg rent, electricity and telephone

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11
Q

total cost is?

A

total cost = production costs + non production costs

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12
Q

what is historic cost

A

most organisations record assets at historical cost

historic cost = original cost to the organisation

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13
Q

what is economic value

A

assets can also be measured at economic value

economic value = the most someone is willing to give up in order to obtain the asset

how much a person is willing to pay for the asset tells us the economic value

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14
Q

what are environmental prevention costs

A

= costs incurred to prevent the production of waste that could cause damage to the environment

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15
Q

what are environmental appraisal costs

A

= costs incurred to assess whether a firms activities comply with environmental laws and standards

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16
Q

what are environmental internal failure costs

A

= costs incurred after waste has been produced but not discharged into the environment

17
Q

what are environmental external failure costs

A

= costs incurred after waste has been produced and discharged into the environment, some of these costs may be paid by society as a whole

18
Q

what is a relevant cost

A

(sometimes known as an avoidable cost) = a future, incremental cash flow arising as a direct consequence of a decision

(incremental = cost incurred from additional unit produced)

19
Q

what is a future cost

A
  • a decision is about the future and can’t alter what has already been done
  • costs that have been incurred in the past are irrelevant to decision made ‘now’, eg past costs or sunk costs
  • costs that have been incurred include not only costs that have already been paid, but also costs that have been committed
20
Q

what are the importance of cash flows in a committed cost

A
  • only cash flow info is required
  • this means that costs or charges that don’t reflect additional cash spending should be ignored
21
Q

what is a committed cost

A

= a future cash flow that will be incurred anyway, regardless of the decision taken now

22
Q

what are the importance of an incrumental in a committed cost

A

= the increase (only) in costs and revenues that occur as a result of the decision

23
Q

what is the opportunity cost

A

the benefit which would have been earned but has been given up by choosing one option instead of another

24
Q

what are non cash flow expenses

A

eg depreciation, apportioned overheads

25
Q

what are sunk costs

A

eg market research

26
Q

what is the historic cost of material

A

if materials are used by a project then they will either:
1. need to be replaced, so the replacement cost is the cash flow, or:
2. they won’t so the cost is zero (or lost revenue if they could have been sold as scrap)

27
Q

what is responsibility accounting

A

a system of accounting that segregates revenue and costs into areas of personal responsibility in order to monitor and assess the performance of each part of an organisation

28
Q

what is a responsibility centre

A

a department or function whose performance is the direct responsibility of a specific manager

is either a cost centre, profit centre, investment centre or revenue centre

29
Q

what are controllable and uncontrollable costs

A

CONTROLLABLE = cost which can be influenced by management decisions and actions

UNCONTROLLABLE = cost unaffected by management in a time span

30
Q

what is a cost centre

A

= managers only have responsibility for controlling costs

31
Q

what is a profit centre

A

= any section of an organisation to which both revenues and costs are assigned so that the profitability of the section may be measured

the manager of the profit centre has some say over revenues and costs

32
Q

what is a revenue centre

A

= any section of an organisation to which revenues are assigned, before they are analysed further

33
Q

what are investment centres

A

profit centres with additional responsibility for capital investment and possibly for financing