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AAT - Management Accounting: costing > Cost classification > Flashcards

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
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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
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3
Q

How can costs centres be incorporated into a business ?

A
  • Departmental costs
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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
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5
Q

Why must costs be classified ? - P15

A
  • Management - suitable info for monitoring & controlling
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6
Q

What are the 4 conventional ways of classfying costs ?

A

By:

  • element
  • behaviour
  • function
  • nature
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7
Q

When would costs be classified by element ? p15

A
  • Split into group - type of expenditure
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8
Q

What are the three types of classification under element?

A
  • Materials
  • Labour
  • Overheads
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9
Q

What are materials ? P15

A
  • Raw materials , components, other materials from suppliers
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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)
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11
Q

What are overheads? - P16

A
  • Expenses
  • Other than materials & labour
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12
Q

What can the three elements of materials, labur , and overheads be divided into further?

A
  • direct costs
  • Indirect costs
    *
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13
Q

What is the classification of direct costs and indirect costs known as?

A
  • classification by nature
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14
Q

What is direct costs known as? -P17

A
  • directly attributed - unit of production/ unit of service
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15
Q

Indirect costs? p17

A
  • not directly attirbuted to a unit of production/ performance of service
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16
Q

What will happen to indirect ccosts initially? p17

A
  • Assigned to a costs Centre
  • Grouped togehter - referred to as overheads
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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
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18
Q

What are indirect materials ? - P18

A
  • indirectly matched - unit of production
  • e.g lubricant for machines
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19
Q

What is indirect labour ? - p18

A
  • Supervisor salary
  • AAT - classes as overheads
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20
Q

What is indirect expenses ? p18

A
  • indirectly identified - product/ service
  • e.g. electricity for lighting & heating
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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
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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

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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
Q

What is the purpose of classifying costs by behaviour? - P21

A
  • 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
Q

What categories are costs split into to make short-term budgeting and forecasting easier?

A
  • Variable
  • fixed
  • stepped
  • semi - variable
27
Q

What are variable costs? - P22

A
  • Varies - direct proportion to activity level
28
Q

What are fixed costs?

A
  • Not affected - changes in activity levels
29
Q

What are stepped costs? - p24

A
  • fixed to particular activity level
  • higher fixed level = activity goes beyond range
30
Q

What are semi variable costs? P25

A
  • fixed element and variable element
31
Q

What is an example of semi variable costs ?

A
  • Telephone bill
  • fixed element for line rentals & variable elements for calls made
32
Q

How are the total semi variable costs calculated? p26

A

variable element per unit * number of units + fixed element

33
Q

How can you determine cost behaviour from two sets of data ?

A
  • 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
Q

What would happen with semi variable costs per unit with two sets of data ? - P27

A
  • costs per unit decreases = fixed element spread over higher units
35
Q

What is the high low method ? P27

A
  • series of steps - identify fixed and variable elements of costs
  • two sets of data required
36
Q

What are the high low method steps?

A
  • 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
Q

What must an organisation consider when selecting a classification system for a costs ? - P29

A
  • information to be used
38
Q

What classification of costs is appropriate for contolling costs ?

A
  • By element & function
39
Q

What classification of costs is appropriate for costs accounting ?

A

By nature

40
Q

What costs is used For budgeting and decision making ? P29

A

by function & behaviour

41
Q

What can different costs classifications also be used for ? - P29

A
  • finding costs of product for control / budgeting purposes
42
Q

How is the calculation of costs for producing one product or unit of service undertaken ? P29

A

series of steps

43
Q

What are the 6 steps for calculating a products costs ? p29/p30

A
  • 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
Q

What is the formula for calculating the costs per unit for product costs steps ? P30

A

Total costs for the period/ number of units for the period = costs per unit

45
Q

What can the unit costs be built up usinng? - P33

A

costs behaviour

46
Q

Whe calculating the costs per unit, what can the unit costs be determined by? P32

A
  • total costs of production
  • building costs up from individual elements
47
Q

How to calculate the one costs per unit if the other costs per units are given ? - p33

A

Costs / units

48
Q

How would you calculate the total costs if the other costs are given ? - P33

A

Units * individual costs per unit

49
Q

How can you check if the unit price is correct ? - P33

A

Total costs / output

50
Q

What must you remember when calculating material costs per unit? P33

A

Quantity of material per unit - identified

51
Q

How do you find the quantity of material per unit? p34

A

Quantity of materials / no of units being manufactured

I.E.

Total materials / total level of output

52
Q

Once the material quantity per unit has been calculated, how would you calculate the material costs per uniit P33 & P34

A

material quantity per unit * costs per material

53
Q

How would you calculate the labour costs per unit if the total costs and total hours of labour are given are given ? P34

A
  • 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
Q

How would you calculate unit costs at different levels of output ?

A
  • 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
Q

How would you calculate the total variable costs if a new level of output is given ?

A
  • Total variable costs / initial level of output = costs per unit
  • costs per unit * new level of output = new total variable costs

AAT - Management Accounting: costing (10 decks)

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