Cost Accounting Part 1_M1

Question 1

What are cost drivers?

Answer 1

• Cost drivers are activities that cause costs to increase as the activity increases. The cost driver is often non-financial. For example, the number of parts ordered.
• Cost drivers are not necessarily cost, but the cause of costs being incurred.
• Often cost drivers are a mechanical basis used to assign costs, but they may also have a financial basis.

Question 2

Why are cost allocated?

Answer 2

• For measuring income and assets for external reporting.
• ABC requires determining the cost drivers (cause) and (effect).

Question 3

What are the common manufactoring cost?

Answer 3

Direct labor is a prime cost, a conversion cost and a product cost.

Conversion Cost DL + FOH

Product Costs DM + DL+ FOH

Prime Cost DM + DL

Question 4

What are cost objectives?

Answer 4

• Will always represent the most relevant components of a particular business’ decision-making requirements.
• Valuation of unexpired costs (such as inventory).
• Determination of net income.
• Measurement of efficiency by comparing actual results to standards.

Question 5

What are the different cost?

Answer 5

• Product cost is assigned to goods (products) that were either purchased or manufactured for resale.
• Period costs are costs that are expensed during a period.
• Opportunity costs are costs that would have been saved or profits that would have been earned if another decision had been selected.
• Relevant costs are costs that are relevant to a particular decision.

Question 6

How does FC and VC vary within the relevant range?

Answer 6

• Fixed cost is one that is fixed in total but varies per unit.
• Total Fixed costs are constant.
• Fixed costs per unit decrease as production levels increase.
• Fixed costs per unit increase as production levels decrease.
• Variable cost is one that varies in total but is fixed per unit.
• Total variable costs increase as total unit volume increases.
• Total variable costs decrease as total unit volume decrease.
• Variable costs per unit remain unchanged/constant.

Question 7

What are direct and value added cost to products?

Answer 7

Direct costs

• Are easily traceable to a product.
• ex. Payments to employees who develop computer programs are considered part of direct labor.

Value-added costs

• Increase the worth of the product or service to customers.
• ex. Employees who develop these programs are adding value to the computer programs.

Question 8

What are the different cost?

Answer 8

The Total Overhead Cost
is a mixed cost because it includes both fixed and variable cost.

Sunk Costs are in the past and unavoidable.

Committed costs are in the future, but unavoidable.

Carrying costs are the costs of carrying inventory.