Cost classification Flashcards
What I must be be able to do after learning costs classification ?
- 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
What happens with a business undertakes certain activities, and what would this depend on ? P14
- Incurr costs
- classified in different ways
- depends - nature and activities
How can costs centres be incorporated into a business ?
- Departmental costs
What will happen within departmental costs? P14
- Various department - different aspects of production process
- various departments - different costs incurred
- various departments - different costs allocated to
Why must costs be classified ? - P15
- Management - suitable info for monitoring & controlling
What are the 4 conventional ways of classfying costs ?
By:
- element
- behaviour
- function
- nature
When would costs be classified by element ? p15
- Split into group - type of expenditure
What are the three types of classification under element?
- Materials
- Labour
- Overheads
What are materials ? P15
- Raw materials , components, other materials from suppliers
What is labour ? - P15/16
- employees costs - wages and salaries
- Costing purpose - direct labour costs only
- supervisor & administrative costs - indirect labour costs ( overheads)
What are overheads? - P16
- Expenses
- Other than materials & labour
What can the three elements of materials, labur , and overheads be divided into further?
- direct costs
- Indirect costs
*
What is the classification of direct costs and indirect costs known as?
- classification by nature
What is direct costs known as? -P17
- directly attributed - unit of production/ unit of service
Indirect costs? p17
- not directly attirbuted to a unit of production/ performance of service
What will happen to indirect ccosts initially? p17
- Assigned to a costs Centre
- Grouped togehter - referred to as overheads
What can sub categories wlll result from materials, labour , and expenses ?
- Direct materiaals
- Direct labour
- Other direct expenses
- ndirect materials
- Indirect labour
- Indirct expensex
What are indirect materials ? - P18
- indirectly matched - unit of production
- e.g lubricant for machines
What is indirect labour ? - p18
- Supervisor salary
- AAT - classes as overheads
What is indirect expenses ? p18
- indirectly identified - product/ service
- e.g. electricity for lighting & heating
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?
- Prime costs
- Total overheads
What does function comprise of and how many categories can cost be divided into? P19
Activities with similar purpose
fiver different categories
What are the function categories that costs can be divided into? - P20
- Production costs
- selling and distrubtion costs
- administrative costs
- finance costs
- specialist costs
Why would management accountants need to classify costs ?
Meet needs of organisation they work for
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
What categories are costs split into to make short-term budgeting and forecasting easier?
- Variable
- fixed
- stepped
- semi - variable
What are variable costs? - P22
- Varies - direct proportion to activity level
What are fixed costs?
- Not affected - changes in activity levels
What are stepped costs? - p24
- fixed to particular activity level
- higher fixed level = activity goes beyond range
What are semi variable costs? P25
- fixed element and variable element
What is an example of semi variable costs ?
- Telephone bill
- fixed element for line rentals & variable elements for calls made
How are the total semi variable costs calculated? p26
variable element per unit * number of units + fixed element
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
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
What is the high low method ? P27
- series of steps - identify fixed and variable elements of costs
- two sets of data required
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
What must an organisation consider when selecting a classification system for a costs ? - P29
- information to be used
What classification of costs is appropriate for contolling costs ?
- By element & function
What classification of costs is appropriate for costs accounting ?
By nature
What costs is used For budgeting and decision making ? P29
by function & behaviour
What can different costs classifications also be used for ? - P29
- finding costs of product for control / budgeting purposes
How is the calculation of costs for producing one product or unit of service undertaken ? P29
series of steps
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
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
What can the unit costs be built up usinng? - P33
costs behaviour
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
How to calculate the one costs per unit if the other costs per units are given ? - p33
Costs / units
How would you calculate the total costs if the other costs are given ? - P33
Units * individual costs per unit
How can you check if the unit price is correct ? - P33
Total costs / output
What must you remember when calculating material costs per unit? P33
Quantity of material per unit - identified
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
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
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
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
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
