Cost Accounting: Cost Classification (CC) & Cost Behaviour (CB)

Question 1

CC: summary of MA?

Answer 1

Decision making
Planning
Control

Question 2

CC: what is a cost object?

Answer 2

Any activity in which a separate measurement of cost is required

Question 3

CC: what does a Cost Collection System accounts for?

Answer 3

1. Accumulates cost by classifying them into certain categories ( eg: material, labour, overheads)
2. Assigns costs to cost objects

Question 4

CC: what costs are incurred in a factory ?

Answer 4

Material, labour, expenses and production overheard

Question 5

CC: what costs are included in a warehouse and office?

Answer 5

Non production overheads: selling and distributive admin, finance

Question 6

CC: what is included in manufacturing costs?

Answer 6

Prime Costs: direct material + direct labour
Conversion costs: direct labour + manufacturing overheads

Question 7

CC: what is included in non-manufacturing costs?

Answer 7

1. Administrative overheads
2. Marketing overheads ( order-getting costs and order-fitting costs )

Question 8

CC: what is a direct cost?

Answer 8

Can be specifically and exclusively identified with a given cost object
Eg: Harrison Spinks Mattress - mattress fillings, labour

Question 9

CC: what is an indirect cost/overhead ?

Answer 9

Can’t be specifically nor exclusively identified with a given cost object
Eg: Harrison Spinks - electricity, supervisor wages, machine maintenance

Question 10

CC: what is the formula of cost per unit?

Answer 10

(Direct costs + Indirects costs)/ no. Of units

Question 11

CC: what is Cost Allocation?

Answer 11

The process of assigning costs to cost objects using surrogate measures rather than direct
Eg: dividing the electricity or rent cost to the mattress

Question 12

CC: what is the distinction between indirect and direct cost and give an example ?

Answer 12

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

Question 13

CC: what is depreciation ?

Answer 13

An accounting estimate that matches the cost a non current asset to the periods in which it is used

Question 14

CC: what is a Product cost?

Answer 14

Costs that are identified with the product and included in the stock ( inventory valuation)

Question 15

CC: what is a period cost?

Answer 15

Not related to the product and not included in the stock
Eg: non manufacturing costs - business costs, delivery costs

Question 16

CC: what is the treatment of a product cost?

Answer 16

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

Question 17

CC: what is the treatment of a Period Cost?

Answer 17

Non-manufacturing cost = period cost
- recorded as an expense in the profit and loss account in the current accounting period

Question 18

CB: what is a Cost Behaviour?

Answer 18

What happens to a cost when activity levels changes
- It can be expressed as total or unit

Question 19

CB: Describe the total and unit ( if applicable ) graphs of:
A. Variable Cost
B. Fixed Cost
C. Step fixed cost
D. Semi-variable cost

Question 20

CB: what is variable cost ?

Answer 20

Vary in direct proportion with activity

Question 21

CB: what is fixed cost?

Answer 21

Remains constant over a wide range of activity

Question 22

CB: what is semi-fixed/ step fixed cost?

Answer 22

Fixed within a specific activity level then eventually increases or decreases at a constant amount at critical activity level

Question 23

CB: what is a semi-variable costs ?

Answer 23

Has both a fixed and variable component ( eg: telephone charges)

Question 24

CB: what does the classification of cost depend on?

Answer 24

Depends on time period involved
In the short some costs are fixed but in the long term all costs are variable

Question 25

CB: How are relevant/avoidable costs and revenue related to decision making?

Answer 25

Changed by a future decision

Question 26

CB: How are irrelevant/unavoidable costs and revenue related to decision making?

Answer 26

Not change by a future decision

Question 27

CB: what is sunk costs?

Answer 27

Costs that have been incurred and can’t be changed by any decisions in the future

Question 28

CB: what is opportunity cost ?

Answer 28

The cost of the opportunity sacrificed picking one course over another alternate course

Question 29

CB: what is incremental cost?

Answer 29

The difference between costs of alternative courses of action

Question 30

CB: What is Marginal costs?

Answer 30

The cost of one extra unit of output

Question 31

CB: what is controllable and uncontrollable costs ?

Answer 31

Influenced by the level of seniority

Question 32

CB: what requirements should a cost and management accounting system follow?

Answer 32

1. Inventory valuation for internal and external profit measurement
2. Provide relevant information to help managers make better decisions
3. Provide information for planning, control and performance measurement

Question 33

CB: what are the requirements of a database?

Answer 33

Maintained with costs appropriately coded to extract information that meets the requirement of a cost and management account system