cost accounting part 1 Flashcards
What is the primary purpose of management accounting?
To provide financial and operational information to internal stakeholders for decision-making, planning, and improving business efficiency.
What is the primary purpose of financial accounting?
To create financial reports for external stakeholders, providing a snapshot of the company’s financial health at a specific point in time.
whats the difference between management and financial accounting
Management accounting focuses on providing information for internal decision-making and operational management, while financial accounting is concerned with reporting a company’s financial performance and position to external stakeholders.
what is cost behaviours
Understanding cost behaviours helps businesses in budgeting, forecasting, and decision-making.
What does Cost Behavior Analysis study?
It studies how specific costs are affected by different levels of business activity.
What are the three main management functions in Management Accounting?
Planning, Managing, and Controlling
How can costs be classified in Cost Behavior Analysis?
Costs can be classified as variable, fixed, or mixed.
What are Variable Costs?
Costs that increase proportionately as output increases, remaining the same per unit.
Give examples of Variable Costs.
Raw materials, direct labor (wages), factory utilities (water, light, electricity), sales commissions, and delivery costs.
What are Fixed Costs?
Costs that remain the same regardless of the level of activity within the relevant range, even as output increases.
What is the Relevant Range in the context of Fixed Costs?
The range of outputs that a business can operate within its current situation.
What are Mixed Costs?
Costs that include both a variable component and a fixed component.
What is the formula for Total Cost?
Total Cost (TC) = Variable Cost (VC) + Fixed Cost (FC), or TC = VC per unit * Quantity + FC.
What assumptions are made in Cost Behavior Analysis?
The assumptions are relevant range (the possible range of outputs) and linearity (both fixed and variable costs are assumed to be linear).
What is Contribution Margin in Cost Volume Profit (CVP) Analysis?
Contribution Margin is the contribution to fixed costs and profit from the core operating activity of the business.
