Cost classification Flashcards
Total product/service costs
- Material
- Wages + salaries
- Other expense
Rent
Electricity, gas
Depreciation
Direct vs. indirect
DIRECT
- can be traced in full to the product, service, department
INDIRECT = OVERHEAD
- cannot be traced directly to product, service, department
DIRECT MATERIAL
All material becoming part of the product (unless used in negligible amounts or having minimal costs)
- Component parts
- Semi-finished work
- Primary packing material
DIRECT LABOUR
All wages paid for labor (either as basic or overtime) expended on work on the product itself.
- Altering the composition / condition of the product
- Inspectors, analysts, testers specifically required
- Shop clerks and anyone with specifically identified wages
TRENDS
- Ratio of direct labor costs vs. total products costs is FALLING as the use of machinery increases, therefore depreciation charges INCREASE
- Skilled labor costs and subcontractors costs are INCREASING as direct labor costs decrease
DIRECT EXPENSES = CHARGABLE
Incurred on a specific product other than material and wages.
- Primer costs
- Hire of tools
PRODUCTION OVERHEAD
All indirect material, wages, indirect expenses incurred from receipt of order to its completion.
- Indirect material - consumable stores (material used in negligible amounts) - wrapping materials, packaging materials, boxes, string, etc
- Indirect wages - non-productive personnel (supervisors)
- Indirect expenses
- Rent, rates, insurance
- Depreciation, fuel, power, maintenence
ADMINISTRATION OVERHEAD
All costs indirect costs incurred in direction, control and administration.
- Depreciation of buildings, equipment
- Office salaries
- Rent, rates, insurance
SELLING OVERHEAD
All indirect costs incurred in promoting sales and retaining customers.
- Printing, stationery
- Salaries, commission
- Advertising, sales promotion
- Rent, rates, insurance
DISTRIBUTION OVERHEAD
All indirect costs incurred in making the packed product ready to dispatch.
- Cost of packaging cases
- Wages of packers, drivers, dispatch clerks
- Insurance charges
CLASSIFICATION BY FUNCTION
- PRODUCTION/MANUFACTURING costs
- Start: supply of raw materials
- End: Completion of the product - ADMINISTRATION costs
- Managing and organization - SELLING costs
- Marketing costs - DISTRIBUTION costs
- RESEARCH costs
- Searching for new or improved product - DEVELOPMENT costs
- incurred between decision to product new, improved product and commencement (začetek) of full manufacture - FINANCING costs
- Financing the business (loans)
P.S. Expenses that do not fall fully into one of these classifications might be categorized as GENERAL OVERHEAD.
FIXED vs VARIABLE costs
- FIXED
- Unaffected by changes in the level of activity. - VARIABLE
- Vary with the level of activity.
PRODUCTION vs. NON-PRODUCTION costs
- PRODUCTION
- All costs involved in the manufacture of goods
- Direct material, direct wages, manufacturing overhead
- Identified with finished product
- Part of value of inventory, they become expenses when inventory is sold. - NON-PRODUCTION
- Taken into the statement of PROFIT and LOSS (INCOME STATEMENT) as EXPENSE
- Selling, administrative expense
- Deducted as expenses, never included in value of inventory
ONLY PRODUCTION COSTS ARE ALLOCATED TO UNITS OF INVENTORY. ADMINISTRATIVE OVERHEADS ARE NON-PRODUCTION COSTS.
COST CENTRE
Collecting places for costs before they are further analyzed.
- department
- machine
- project
- overhead costs (rent, electricity)
Starting point for:
- Classification
- Preparation of budgets
- Comparison
COST UNIT
Unit of product or service to which costs can be related. Basic control unit.
- patient episode in hospital
- Room in the hotel
COST OBJECT
Activity for which a separate measurement of costs is desired.
