Cost Accounting: Cost Classification (CC) & Cost Behaviour (CB) Flashcards
CC: summary of MA?
Decision making
Planning
Control
CC: what is a cost object?
Any activity in which a separate measurement of cost is required
CC: what does a Cost Collection System accounts for?
- Accumulates cost by classifying them into certain categories ( eg: material, labour, overheads)
- Assigns costs to cost objects
CC: what costs are incurred in a factory ?
Material, labour, expenses and production overheard
CC: what costs are included in a warehouse and office?
Non production overheads: selling and distributive admin, finance
CC: what is included in manufacturing costs?
Prime Costs: direct material + direct labour
Conversion costs: direct labour + manufacturing overheads
CC: what is included in non-manufacturing costs?
- Administrative overheads
- Marketing overheads ( order-getting costs and order-fitting costs )
CC: what is a direct cost?
Can be specifically and exclusively identified with a given cost object
Eg: Harrison Spinks Mattress - mattress fillings, labour
CC: what is an indirect cost/overhead ?
Can’t be specifically nor exclusively identified with a given cost object
Eg: Harrison Spinks - electricity, supervisor wages, machine maintenance
CC: what is the formula of cost per unit?
(Direct costs + Indirects costs)/ no. Of units
CC: what is Cost Allocation?
The process of assigning costs to cost objects using surrogate measures rather than direct
Eg: dividing the electricity or rent cost to the mattress
CC: what is the distinction between indirect and direct cost and give an example ?
Direct and Indirect cost depends on what is identified as the cost object
Eg: is the salary of the mattress line supervisor a direct or indirect cost ?
- A specific model of mattress: indirect
- The mattress line : direct
CC: what is depreciation ?
An accounting estimate that matches the cost a non current asset to the periods in which it is used
CC: what is a Product cost?
Costs that are identified with the product and included in the stock ( inventory valuation)
CC: what is a period cost?
Not related to the product and not included in the stock
Eg: non manufacturing costs - business costs, delivery costs
CC: what is the treatment of a product cost?
Manufacturing costs = product cost
- Unsold : recorded as an asset ( inventory) in the balance sheet
- Sold: recorded as an expense in the profit and loss account in the current accounting period
CC: what is the treatment of a Period Cost?
Non-manufacturing cost = period cost
- recorded as an expense in the profit and loss account in the current accounting period
CB: what is a Cost Behaviour?
What happens to a cost when activity levels changes
- It can be expressed as total or unit
CB: Describe the total and unit ( if applicable ) graphs of:
A. Variable Cost
B. Fixed Cost
C. Step fixed cost
D. Semi-variable cost
CB: what is variable cost ?
Vary in direct proportion with activity
CB: what is fixed cost?
Remains constant over a wide range of activity
CB: what is semi-fixed/ step fixed cost?
Fixed within a specific activity level then eventually increases or decreases at a constant amount at critical activity level
CB: what is a semi-variable costs ?
Has both a fixed and variable component ( eg: telephone charges)
CB: what does the classification of cost depend on?
Depends on time period involved
In the short some costs are fixed but in the long term all costs are variable
CB: How are relevant/avoidable costs and revenue related to decision making?
Changed by a future decision
CB: How are irrelevant/unavoidable costs and revenue related to decision making?
Not change by a future decision
CB: what is sunk costs?
Costs that have been incurred and can’t be changed by any decisions in the future
CB: what is opportunity cost ?
The cost of the opportunity sacrificed picking one course over another alternate course
CB: what is incremental cost?
The difference between costs of alternative courses of action
CB: What is Marginal costs?
The cost of one extra unit of output
CB: what is controllable and uncontrollable costs ?
Influenced by the level of seniority
CB: what requirements should a cost and management accounting system follow?
- Inventory valuation for internal and external profit measurement
- Provide relevant information to help managers make better decisions
- Provide information for planning, control and performance measurement
CB: what are the requirements of a database?
Maintained with costs appropriately coded to extract information that meets the requirement of a cost and management account system
