Chapter Two Flashcards
In bookkeeping system what are costs classified into their ledger accounts as
Purchases
Wages
Various expenses - rent electric etc
In management accounting, the classsification of costs needs to be detailed and focused because
Managers use it to plan, make decisions and control operations
What is management accounting concerned with
Revenue expenditure
Does management accounting include depreciation
Yes
What is depreciation
How much of a non current asset is used up in a period
Costs can be classified by function, meaning ?
Whether they are incurred in production or by the admin department
What can costs be classified as?
By function, element of costs, their nature
What does classified by nature mean
Whether they r incurred directly in the course of making a product or providing a service (direct costs) or indirectly in providing general management, selling, finance or admin support (indirect costs)
What is the element of costs
Materials, labour and expense
How costs are classified depends on what
How the info is to be used
What is a cost object
Anything for which data is desired, eg, products, product line, job, customers or departments and divisions of company
What is cost unit
A unit or product or service in relation tow high costs may be ascertained. The cost unit should be appropriate to the type of business
What is cost center
A location, function or item of equipment in respect of which costs be ascertained and related to cost units for control purposes.
What does each cost center act as
A collecting place for certain costs before they are analysed further
What does classification by function involve
Relating the costs to the activity causing the costs. Eg finance costs, production costs, admin or marketing costs
A way of classifying revenue expenses look at three major costs elements…?
Materials, labour, overheads
What is the equation for prime cost
Prime cost = direct materials + direct labour + direct expenses
What is the equation for overheads
Overheads = indirect materials + indirect labour + indirect expense
Eg of direct material
Material incorporated into the final product, eg wood
Eg of indirect material
Materials used in the production process but not incorporated into the final product ,,, nails, glue, spare parts
Eg of direct labour
Wages to people who make products in a manufacturing business or perform a service in a service business eg hairdressers in a salon
Eg of indirect labour
Wages and salaries of all other staff, eg management supervisors, store keepers etc
Eg of direct expenses
Expenses that are indentifiable with each unit of production, such as patent royalties payable to the inventor of a new process or product
Eg of indirect expenses
Expenses that are not spent on individual units of production, eg- rent and rates, electric
What is a responsibility center
A department or function whose performance is the direct responsibility of a specific manager
What are the different types of responsibility centers
Cost revenue, profit and investment centers
What is a cost center
A cost center is a location, function or item of equipment in respect of which costs may be ascertained and related to cost units for control purposes.
What does each cost center act as?
A collecting point for certain costs before they are analysed further. A cost center manager is accountable for costs only.
What are production cost centers
These are factory cost centers through which units of production actually flow
What are service cost centers
These support or service the production cost centers
What are profit centers
Similar to a cost center but the manager is responsible for both revenue and costs
What is an investment center
A profit center with additional responsibilities for capital investment
What is a revenue center
A department responsible for generating sales revenue
