Cost classification Flashcards
1
Q
What I must be be able to do after learning costs classification ?
A
- U DICC
- U - use of costs classification & analysis, decision making & reporting explain
- D - differentiate costs classification
- I - Identify the four behaviour costs
- C - calculate unit/ total production costs
- C- calculated direct material/ labour costs
2
Q
What happens with a business undertakes certain activities, and what would this depend on ? P14
A
- Incurr costs
- classified in different ways
- depends - nature and activities
3
Q
How can costs centres be incorporated into a business ?
A
- Departmental costs
4
Q
What will happen within departmental costs? P14
A
- Various department - different aspects of production process
- various departments - different costs incurred
- various departments - different costs allocated to
5
Q
Why must costs be classified ? - P15
A
- Management - suitable info for monitoring & controlling
6
Q
What are the 4 conventional ways of classfying costs ?
A
By:
- element
- behaviour
- function
- nature
7
Q
When would costs be classified by element ? p15
A
- Split into group - type of expenditure
8
Q
What are the three types of classification under element?
A
- Materials
- Labour
- Overheads
9
Q
What are materials ? P15
A
- Raw materials , components, other materials from suppliers
10
Q
What is labour ? - P15/16
A
- employees costs - wages and salaries
- Costing purpose - direct labour costs only
- supervisor & administrative costs - indirect labour costs ( overheads)
11
Q
What are overheads? - P16
A
- Expenses
- Other than materials & labour
12
Q
What can the three elements of materials, labur , and overheads be divided into further?
A
- direct costs
- Indirect costs
*
13
Q
What is the classification of direct costs and indirect costs known as?
A
- classification by nature
14
Q
What is direct costs known as? -P17
A
- directly attributed - unit of production/ unit of service
15
Q
Indirect costs? p17
A
- not directly attirbuted to a unit of production/ performance of service
16
Q
What will happen to indirect ccosts initially? p17
A
- Assigned to a costs Centre
- Grouped togehter - referred to as overheads
17
Q
What can sub categories wlll result from materials, labour , and expenses ?
A
- Direct materiaals
- Direct labour
- Other direct expenses
- ndirect materials
- Indirect labour
- Indirct expensex
18
Q
What are indirect materials ? - P18
A
- indirectly matched - unit of production
- e.g lubricant for machines
19
Q
What is indirect labour ? - p18
A
- Supervisor salary
- AAT - classes as overheads
20
Q
What is indirect expenses ? p18
A
- indirectly identified - product/ service
- e.g. electricity for lighting & heating
21
Q
In a manufacturing environment, what is the total of all diret costs of production known as ?
What is the total of all indirect costs of production known as?
A
- Prime costs
- Total overheads
22
Q
What does function comprise of and how many categories can cost be divided into? P19
A
Activities with similar purpose
fiver different categories
23
Q
What are the function categories that costs can be divided into? - P20
A
- Production costs
- selling and distrubtion costs
- administrative costs
- finance costs
- specialist costs
24
Q
Why would management accountants need to classify costs ?
A
Meet needs of organisation they work for
25
What is the purpose of classifying costs by behaviour? - P21
* Short term budgeting
* how cost varies - differing levels of activity
* e.g. expectation of producing 1000 units - what should costs for labour , selling , heat etc be
26
What categories are costs split into to make short-term budgeting and forecasting easier?
* Variable
* fixed
* stepped
* semi - variable
27
What are variable costs? - P22
* Varies - direct proportion to activity level
28
What are fixed costs?
* Not affected - changes in activity levels
29
What are stepped costs? - p24
* fixed to particular activity level
* higher fixed level = activity goes beyond range
30
What are semi variable costs? P25
* fixed element and variable element
31
What is an example of semi variable costs ?
* Telephone bill
* fixed element for line rentals & variable elements for calls made
32
How are the total semi variable costs calculated? p26
variable element per unit \* number of units + fixed element
33
How can you determine cost behaviour from two sets of data ?
* Total costs/ costs units :
* same costs per unit = variable costs
* different costs per unit = semi variable
* total costs is the same/ cost per unit decreases = fixed costs
34
What would happen with semi variable costs per unit with two sets of data ? - P27
* costs per unit decreases = fixed element spread over higher units
35
What is the high low method ? P27
* series of steps - identify fixed and variable elements of costs
* two sets of data required
36
What are the high low method steps?
* identify - higher & lower costs totals and their associated level of activity
* Calculate - different between two costs totals
* Calculate - difference between two levels of activity
* Divide - difference in costs/ difference in units = variable costs per unit
* Calculate variable costs total part = variable cost per unit \* units
* Deduct = total costs - variable part = fixed element
* check answer - variable and fixed calcuilate other costs total
37
What must an organisation consider when selecting a classification system for a costs ? - P29
* information to be used
38
What classification of costs is appropriate for contolling costs ?
* By element & function
39
What classification of costs is appropriate for costs accounting ?
By nature
40
What costs is used For budgeting and decision making ? P29
by function & behaviour
41
What can different costs classifications also be used for ? - P29
* finding costs of product for control / budgeting purposes
42
How is the calculation of costs for producing one product or unit of service undertaken ? P29
series of steps
43
What are the 6 steps for calculating a products costs ? p29/p30
* Identify unit of output
* Estimate - no of units of output for the period considered
* Identify - direct costs associated with unit of product/ service
* identify - indirect costs
* caculate total costs - production/ offering of service
* calculate - costs per unit of output/ service
44
What is the formula for calculating the costs per unit for product costs steps ? P30
Total costs for the period/ number of units for the period = costs per unit
45
What can the unit costs be built up usinng? - P33
costs behaviour
46
Whe calculating the costs per unit, what can the unit costs be determined by? P32
* total costs of production
* building costs up from individual elements
47
How to calculate the one costs per unit if the other costs per units are given ? - p33
Costs / units
48
How would you calculate the total costs if the other costs are given ? - P33
Units \* individual costs per unit
49
How can you check if the unit price is correct ? - P33
Total costs / output
50
What must you remember when calculating material costs per unit? P33
Quantity of material per unit - identified
51
How do you find the quantity of material per unit? p34
Quantity of materials / no of units being manufactured
I.E.
Total materials / total level of output
52
Once the material quantity per unit has been calculated, how would you calculate the material costs per uniit P33 & P34
material quantity per unit \* costs per material
53
How would you calculate the labour costs per unit if the total costs and total hours of labour are given are given ? P34
* Calculate - labour HOURS for producing one unit besides hourly labour rate
* Total hours / total unnits = Hours per unit
* Total costs / total hours = labour costs per hourt
* hours per unit \* labour costs per hour = labour costs per unit
54
How would you calculate unit costs at different levels of output ?
* Total variable costs and total fixed costs are given for a certain level of output - company wants to identify unit + total costs for different leevel
* Same fixed costs / new level of output
* Same variable costs / initial level of output
55
How would you calculate the total variable costs if a new level of output is given ?
* Total variable costs / initial level of output = costs per unit
* costs per unit \* new level of output = new total variable costs
