2 - Costing Flashcards
what is a cost object
anything for which cost data is desired
eg, products, product lines, jobs, customers or departments and divisions of a company
what is a cost unit
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
what is a cost centre
a function or location for which costs are ascertained and related to cost units for control purposes
what are production/service cost centres
PRODUCTION = those actively involved in production process
SERVICE = provide a service or backup to production departments
what is cost classification
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
what are direct costs
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
what are prime costs
the total of all direct production costs
what are direct materials/labour/expenses
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
what are indirect production costs
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)
examples of all materials/labour/expenses
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
total cost is?
total cost = production costs + non production costs
what is historic cost
most organisations record assets at historical cost
historic cost = original cost to the organisation
what is economic value
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
what are environmental prevention costs
= costs incurred to prevent the production of waste that could cause damage to the environment
what are environmental appraisal costs
= costs incurred to assess whether a firms activities comply with environmental laws and standards