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.
PROFIT CENTRES
Accountable for revenues and costs.
How revenue is raised and costs incurred.
REVENUE CENTRES
Accountable for revenues only (how revenues are raised).
INVESTMENT CENTRES
Profit centre with additional responsibilities for CAPITAL INVESTMENT and possibly for FINANCING.
- Measurement of success in return on investment
- Handling of cash surpluses
RESPONSIBILITY CENTRES
Department whose performance is direct responsibility of specific manager.
