Chapter 7

Question 1

Cost Objects

Answer 1

The costs of a business can be organised around what are known as cost objects.
A cost object can be defined as anything in a business that generates costs.
A cost object may be a department of a business, such as, the marketing department or a product manufactured by a business, such as, a camera.
The management of a business will want to know how much of the resources of the business have been consumed by each cost object.

Question 2

Direct and Indirect Costs

Answer 2

The cost attached to a cost object can be divided into direct and indirect costs.

Question 3

Direct Costs

Answer 3

A direct cost can be easily linked to a particular cost object.

Question 4

Indirect Costs

Answer 4

An indirect cost cannot be easily linked to a particular cost object.

Question 5

Product Costs and Period Costs

Answer 5

Costs can also be divided into product costs and period costs.
A product cost is directly linked to the manufacture or the purchase of a product.

Question 6

Types of Product Costs

Answer 6

Product costs can be divided into three different types:

• direct material
• direct labour
• factory overhead

Question 7

Direct Materials

Answer 7

Direct materials are the raw materials that are turned in finished products and can be easily linked to a product.

• wood
• metals
• cloth
• chemicals

Question 8

Direct Labour

Answer 8

Direct labour is the wages of the employees who manufacture a product or provide a service to customers.

Question 9

Factory Overhead (or Manufacturing Overhead)

Answer 9

Factory overhead is all the other factory costs.

• wages of factory supervisor
• rent of factory
• electricity of the factory
• oil and grease used to keep the machinery operating
• depreciation of machinery
• factory cleaning
• repair and maintenance of the factory equipment and the factory building