Chapter 1 Flashcards
Introduction to Cost Accounting
Cost classification
Process of grouping costs according to the common characteristics
Classified based on their nature,behavior and function
Direct cost
cost that can be identified directly to the product or cost unit.
Example : Direct material, direct labour and direct expenses
Indirect costs
Cost that cannot be identified directly to the product or cost unit.
Example : Indirect material, indirect labour and indirect expenses
Fixed cost
Cost that will not change or remain constant when level of production changes
Variable cost
Cost that will change in direct proportion when level of activity changes
Mixed cost/ Semi variable/Semi fixed cost
Contains both fixed & variable elements.
Semi fixed remain constant even when level of activity changes
Semi variable cost of an item may move or change when level of production changes
Step cost
Fixed cost which fixed over a range of activity and then rises to a new level as activity changes
Cost centre
a location, person or item of equipment for which costs may be ascertained and used for the purposes of control cost
Profit centre
Subunit that has responsibility for generating revenue as well as controlling costs
Cost unit
A unit of quantitiy of product,service or time in relation to which cost may be ascertained or expressed
Source documents
1) material requisition note
2) invoice
3) goods received note
4) purchase order
5) inspection note
objectives of store keeping
1) to avoid over/under stocking of materials
2) minimize the storage cost of materials
3) maintain systematic records of materials
Lead time
The period of time between ordering and replenisment
ROL
level of stock which a further replenishment order should be placed
EOQ
reorder quantity which minimize the balance of cost between CO n CC
