AC200 TOPIC 2

Question 1

what is cost object

Answer 1

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

Question 2

management accounting uses cost objects for?

Answer 2

budgets
planning
coordination
control

Question 3

what are the classification found in cost object?

Answer 3

• manufacturing and non-manufacturing
• period and product costs
• fixed vs variable
  -direct vs indirect

Question 4

wha tis the first was to classify goods

Answer 4

manufacturing and non-manufacturing goods

Question 5

what are the three categories in manufacturing

Answer 5

direct material
direct labour
manufacturing and overhead costs

Question 6

what are direct materials

Answer 6

materials that become and integral part of the product
example : the radio of a car

Question 7

indirect labours example

Answer 7

drill , detergent that cleans the floor of the office

Question 8

what is direct labour

Answer 8

costs that can be easily traced to individual units of product
example
- machine operators
chefs

Question 9

what are manufacturing overhead costs

Answer 9

costs that cannot be easily directly traced to specific units.
eg indirect labour, indirect materials

Question 10

what elements of manufacturing cost do overhead costs include?

Answer 10

repairs, depreciation, indirect labour, indirect materials… all except direct labour and materials

Question 11

what is conversion cost

Answer 11

combination of direct labour and manufacturing overhead costs that are incurred during the transformation of raw materials or components into finished goods

Question 12

what is prime cost

Answer 12

the total cost of basic and essential elements that go into making a product or providing a service.

Question 13

what are non-manufacturing costs

Answer 13

they are the expenses that are not directly tied to the manufacturing or production of goods

Question 14

what can we find in non-manufacturing cost

Answer 14

selling & marketing
administration

Question 15

what are examples of manufacturing and selling costs?

Answer 15

advertising,
shipping,
sales travel,
sales commission,
sales salaries
cost of finishing goods warehouses

Question 16

what are examples of administration costs?

Answer 16

general accounting
secretarial
public relations

Question 17

what do we find in classification two?

Answer 17

period and product cost

Question 18

what do product costs involve?

Answer 18

the purchase or manufacture of goods

Question 19

what are product cost assigned to?

Answer 19

stocks

Question 20

when are stocks considered assets?

Answer 20

until they are sold

Question 21

what is period costs?

Answer 21

this consists of selling and administration expenses

Question 22

what are manufacturing companies?

Answer 22

they convert raw material into a product

Question 23

what are merchandising companies?

Answer 23

they buy the finished product and sell the product to customers

Question 24

who has a more complex financial statement? a merchandising company or manufacturing company?

Answer 24

manufacturing company

Question 25

why do manufacturing companies have a more complex income statment?

Answer 25

because they have to produce the goods and market them

Question 26

do manufacturing and merchandising companies have the same stock account?

Answer 26

no

Question 27

what types of stock accounts do merchandising companies have?

Answer 27

only one class of stock - goods purchased from supplier that are awaiting resale to customers

Question 28

what types of stock accounts do manufacturing companies have?

Answer 28

three classes of stock
- raw materials
- work in progress
- finished goods

Question 29

stock flows equation

Answer 29

beginning balance + additions = available balance - withdrawals = ending balance

Question 30

What is cost classifications for cost behaviours?

Answer 30

How will cost react to changes in the levels of business activity

Question 31

costs can be categorised on their behaviour based on what two main types?

Answer 31

total fixed costs
total variable costs

Question 32

what is total variable costs

Answer 32

They change when the activity changes

Question 33

what is total fixed costs

Answer 33

they remain unchanged when activity changes

Question 34

how do you calculate the variable cost per unit

Answer 34

variable cost per unit = changein cost/ change in activity levels

Question 35

variables costs can include what expenses?

Answer 35

direct materials, direct labours, overhead costs

Question 36

name the types of variable costs

Answer 36

true variable costs
step variable costs

Question 37

Types of Fixed Costs

Answer 37

committed
discretionary

Question 38

what is relevant range

Answer 38

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.

Question 39

What are relevant costs?

Answer 39

are those futures costs and revenues that will be changed by a decision

Question 40

what are irrelevant costs?

Answer 40

those that will no be affected by the decision

Question 41

what is opportunity cost ?

Answer 41

the potential benefit that is given up when one alternative is selected over another

Question 42

what is sunk cost?

Answer 42

a cost that has already been incurred and that cannot be changed by any decision made now or in the future