AC200 TOPIC 2 Flashcards
what is cost object
it is any activity for which a separate measurement of costs is desired. In other words, if the users of accounting information want to know the cost of something
management accounting uses cost objects for?
budgets
planning
coordination
control
what are the classification found in cost object?
- manufacturing and non-manufacturing
- period and product costs
- fixed vs variable
-direct vs indirect
wha tis the first was to classify goods
manufacturing and non-manufacturing goods
what are the three categories in manufacturing
direct material
direct labour
manufacturing and overhead costs
what are direct materials
materials that become and integral part of the product
example : the radio of a car
indirect labours example
drill , detergent that cleans the floor of the office
what is direct labour
costs that can be easily traced to individual units of product
example
- machine operators
chefs
what are manufacturing overhead costs
costs that cannot be easily directly traced to specific units.
eg indirect labour, indirect materials
what elements of manufacturing cost do overhead costs include?
repairs, depreciation, indirect labour, indirect materials… all except direct labour and materials
what is conversion cost
combination of direct labour and manufacturing overhead costs that are incurred during the transformation of raw materials or components into finished goods
what is prime cost
the total cost of basic and essential elements that go into making a product or providing a service.
what are non-manufacturing costs
they are the expenses that are not directly tied to the manufacturing or production of goods
what can we find in non-manufacturing cost
selling & marketing
administration
what are examples of manufacturing and selling costs?
advertising,
shipping,
sales travel,
sales commission,
sales salaries
cost of finishing goods warehouses
what are examples of administration costs?
general accounting
secretarial
public relations
what do we find in classification two?
period and product cost
what do product costs involve?
the purchase or manufacture of goods
what are product cost assigned to?
stocks
when are stocks considered assets?
until they are sold
what is period costs?
this consists of selling and administration expenses
what are manufacturing companies?
they convert raw material into a product
what are merchandising companies?
they buy the finished product and sell the product to customers
who has a more complex financial statement? a merchandising company or manufacturing company?
manufacturing company
why do manufacturing companies have a more complex income statment?
because they have to produce the goods and market them
do manufacturing and merchandising companies have the same stock account?
no
what types of stock accounts do merchandising companies have?
only one class of stock - goods purchased from supplier that are awaiting resale to customers
what types of stock accounts do manufacturing companies have?
three classes of stock
- raw materials
- work in progress
- finished goods
stock flows equation
beginning balance + additions = available balance - withdrawals = ending balance
What is cost classifications for cost behaviours?
How will cost react to changes in the levels of business activity
costs can be categorised on their behaviour based on what two main types?
total fixed costs
total variable costs
what is total variable costs
They change when the activity changes
what is total fixed costs
they remain unchanged when activity changes
how do you calculate the variable cost per unit
variable cost per unit = changein cost/ change in activity levels
variables costs can include what expenses?
direct materials, direct labours, overhead costs
name the types of variable costs
true variable costs
step variable costs
Types of Fixed Costs
committed
discretionary
what is relevant range
it is the range of activity within which the assumptions made about cost behaviour by the manager are valid
EXAMPLE:
Restaurant: A restaurant’s relevant range for daily customers might be 50 to 150 customers per day. Within this range, food costs, labor costs, and utility expenses are relatively consistent. However, if daily customer counts fall below 50 or exceed 150, the cost structure may vary.
What are relevant costs?
are those futures costs and revenues that will be changed by a decision
what are irrelevant costs?
those that will no be affected by the decision
what is opportunity cost ?
the potential benefit that is given up when one alternative is selected over another
what is sunk cost?
a cost that has already been incurred and that cannot be changed by any decision made now or in the future
