CIMA - Chapter 2.1 - Introduction to costing - Cost Accounting Concepts

Question 1

What are Cost Objects

Answer 1

1. If accounting information users want to know the cost of something, that something is called a cost object.

Question 2

What is the purpose of Cost Objects

Answer 2

1. Identifies where costs are incurred.

Question 3

What is the scope of Cost Objects

Answer 3

Broad, covering projects, teams, or deliverables.

Question 4

What do Cost Objects focus on?

Answer 4

Cost Object: Focuses on where costs are incurred (the destination of costs).

Question 5

Name some examples of Cost Objects

Answer 5

1. A software project.
2. client.
3. sprint.

Question 6

What are Cost Units

Answer 6

1. Cost Units provide a standardized way to measure costs.
2. Cost units are used to measure the cost of cost objects

Question 7

What question does Cost Units answer?

Answer 7

1. How do we measure and allocate costs

Question 8

What is the relationship between Cost Objects and Cost Units?

Answer 8

1. Cost units serve as the basis for quantifying and allocating costs to cost objects.

Question 9

When would a Cost Object have more than Cost Unit?

Answer 9

1. Complexity of Activities - A single cost object may involve multiple types of activities, each requiring a different basis for cost measurement.
2. Comprehensive Cost Analysis - Multiple cost units provide a clearer understanding of how different components contribute to the total cost of the cost object.
3. Improved Cost Allocation - Allocating costs based on relevant cost units ensures fairness and accuracy.

Question 10

Are Cost units specific to Industries

Answer 10

The nature of the cost unit varies based on the industry or service type

Question 11

What are the types of Cost Units

Answer 11

1. Physical Units - per car.
2. Time-Based Units - Per hour or per day.
3. Functional Units - Per module, per feature, or per sprint.
4. Composite Units - Per ton-kilometer, Per passenger-mile.

Question 12

What are composite cost units?

Answer 12

A composite cost unit is a combination of two or more cost units

Question 13

What are the Key Characteristics of Composite Cost Units

Answer 13

1. Multiple Components : Combines different elements or dimensions into one cost unit.
   * Distance and weight in logistics (e.g., “ton-kilometer”)
2. Industry-Specific : Common in industries where the output or activity involves multiple measurable dimensions
   * “per patient-day” (combining the number of patients and the days they stay)
3. Reflects Complexity - Accurately represents the relationship between different variables impacting costs.

Question 14

Can you explain Per Ton-Kilometer

Answer 14

Question 15

Can you explain Per Feature-Sprint

Answer 15

Question 16

When to Use Composite Cost Units

Answer 16

1. Complex Outputs:
   * When the cost depends on multiple factors (e.g., weight and distance, time and output).
2. Service-Based Industries:
   * measure the cost of services that vary based on time or usage (e.g., “per room-night”).
3. Project-Based Work:
   * To track costs in multifaceted projects, such as “per feature-sprint” in software development.