Classification of cost- management accounting

Question 1

What must be done so that information can be prepared for the managers?

Answer 1

cost must be classified

Question 2

What does it mean if costs are classified?

Answer 2

organised into sets in a way that managers will find useful

Question 3

What are the 3 basic ways to split up costs?

Answer 3

Materials costs
Labour costs
Expenses

Question 4

What are material costs?

Answer 4

the costs of all sorts of raw materials, components and other goods used

Question 5

What are some examples of material costs?

Answer 5

components to make a TV set
Cleaning materials
grease for machines

Question 6

What are labour costs?

Answer 6

the cost of employees wages and salaries

Question 7

What are expenses costs?

Answer 7

other costs which cannot be included in materials and labour

Question 8

What are some examples of expenses costs?

Answer 8

rent and rates
telephone charges
insurance

Question 9

How can the type of cost to the business be split?

Answer 9

Direct
Indirect

Question 10

What are direct costs?

Answer 10

Clearly linked to a unit of output
Only paying because you make a product

Question 11

What are some examples of direct costs?

Answer 11

Labour costs
Raw materials

Question 12

What are indirect costs?

Answer 12

costs that we cannot directly link to a unit of output but still have to be paid

Question 13

What are some examples of indirect costs?

Answer 13

Grease for machines
Heating for factory
Supervisors salary

Question 14

What are material direct costs?

Answer 14

cost of raw materials from which the finished product is made

Question 15

What are material indirect costs?

Answer 15

the cost of all other materials

Question 16

What are labour direct costs?

Answer 16

wages paid to those who work the machinery on the production line or who are involved in assembly or finishing of product

Question 17

What are labour indirect costs?

Answer 17

wages and salaries paid to all other employees (managers, supervisors, maintenance staff and admin staff)

Question 18

What are expenses direct costs?

Answer 18

any expenses which can be attributed to particular units of output (royalties to product designer, fees linked to people who are not employees)

Question 19

What are expenses indirect costs?

Answer 19

All other expenses (lighting and heating, rent, rates , telephone depreciation of fixed assets
Not directly linked to unit output

Question 20

What are fixed costs?

Answer 20

Cost that does not change with output
Constant for a fixed time period and range of outputs

Question 21

What is an example of a fixed cost?

Answer 21

Rent

Question 22

What does the graph for the fixed cost per unit look like?

Answer 22

L shape on the graph with cost decreasing with output

Question 23

What does the graph look like for total fixed costs?

Answer 23

Straight flat line with cost and output being the same

Question 24

What are stepped costs?

Answer 24

fixed costs that increase at regular intervals

Question 25

What are some examples of stepped costs?

Answer 25

Factory supervisors salary

Question 26

What does the graph look like for stepped costs?

Answer 26

Looks like a set of stairs going up

Question 27

What are semi-variable costs?

Answer 27

Costs that change with output but not directly or proportionately

Question 28

What are some examples of semi-variable costs?

Answer 28

Utility bills (gas + electric)

Question 29

What are variable costs?

Answer 29

cost that changes with output directly and proportionality

Question 30

What do the graphs look like for variable costs?

Answer 30

Total= linear increase
Unit= straight, flat line

Question 31

What is marginal cost?

Answer 31

The cost of producing 1 more unit

Question 32

What is an example of marginal costs?

Answer 32

Making 100 pens and the cost to make the 101st unit

Question 33

What will marginal cost usually be equal to?

Answer 33

Variable costs

Question 34

Why must companies look at there marginal cost before making too many orders?

Answer 34

If at full capacity the cost of producing the extra unit will also be the cost of a new factory and workers

Question 34

Why must companies look at there marginal cost before making too many orders?

Answer 34

If at full capacity the cost of producing the extra unit will also be the cost of a new factory and workers

Question 35

How can a small increase units be managed when at full capacity?

Answer 35

Might have workers do overtime or give bonuses to create extra product

Question 36

What is contribution?

Answer 36

The amount of money each product gives to wards paying fixed costs

Question 37

What is the order for contribution? (For using it)

Answer 37

Fixed cost first then goes towards profit

Question 38

What is the formula for contribution?

Answer 38

Sale price- unit variable cost

Question 39

When would you use target profit?

Answer 39

when business survival depends on reaching a certain level of profit or choosing between different projects

Question 40

What is the formula for target profits?

Answer 40

(Target profit + fixed costs)/ Unit contribution

Question 41

What would the target profit be if units is 75000 selling price = 10.60 and variable cost =4.2 and fixed costs are 220,000?

Answer 41

Target profit= 75000x10.6=795000-220000-(4.2x75000)=260000
Unit contribution= 10.6-4.2=6.4
Number of units to reach target profit= (220000+260000)/6.4= 75000