Ch2: Terminology, Concept & Source Documents Flashcards
What is a “Cost” in this context?
An economic sacrifice of resources made in exchange for a product or service.
What name is given to a cost that is expected to provide a benefit beyond the current accounting period?
An asset
What name is given to a cost of its benefit is not expected to last longer then the current accounting period?
An expense
A current asset that will be consumed during a later period is considered an expense of that period. How is this expense accounted for?
Recorded using the depreciation and accumulated depreciation accounts
What is an expense?
A consumption or loss of resource, also known as an expired cost
What are fixed costs?
Expenses that remain the same for a period of time and the overall cost is not influenced by the range of output
What effect does the level of production have on a fixed cost?
The fixed cost per unit decreases
What are variable costs?
Costs that tend increase or decrease in proportion to the businesses output
What are semi variable costs?
Costs that contain a portion that is both fixed and variable. This means that they will increase or decrease with a change in production, but not in direct proportion to that change
What is one method of identifying the variable portion of a semi-variable cost?
The high-low method
What is traceability?
The ability to trace a cost to a particular job, process or department.
What are direct costs?
A cost that can be traced back to a final product or service
What are indirect costs?
Costs that can’t easily be traced back to a final product or service. For example, administrative costs and labour
What are controllable costs? Give an example
A cost in which a manager can exert some influence over. For example, the amount of raw materials that are used in the manufacturing process.
What are uncontrollable costs?
Costs that the manager has no influence over. For example, costs paid to ASIC to register and renew the company
Give an example of a cost that is both controllable and uncontrollable
Raw materials as the manager cannot control the price the supplier charges (uncontrollable) but they can control how much materials they use and which supplier they choose (controllable).
What is a unit cost?
The cost incurred for each product or service produced
What are period costs?
Costs incurred in disposing of goods, general administration and financial expenses. They are also referred to as operating expenses
What are product costs?
Costs incurred in getting raw material and converting it to a finished product. It includes material, labour and manufacturing overheads
What are budgeted (or standard) costs
Costs that are used as benchmarks to determine prices or overhead application rates
What are prime costs?
Direct labour plus direct materials
What is a conversion cost?
Direct labour plus manufacturing overheads
What is a cost object?
An item (eg hours, units or a job) to which costs are assigned
What is a sales order?
A source document which records key information of a sale, including contact details, type of job, requirements and due dates
What is a production order?
A source document that is created from the details given in the sales order. It provides details on what needs to be made and when
What is the purpose of job costing records?
Job costing records (such as time sheets, job cards and job summary sheets) are documents used to document charges of direct materials, direct la bour and manufacturing for each unique job or job lot. These records are used to compute and allocate costs to products and services.
When total costs are determined, the business can then charge out the job to the customer
