Cost Terms & Purposes

Question 1

What is a cost?

Answer 1

A resource sacrificed for achieving an objective

cost is not an expense or a cash outflow

Question 2

What is a cost object?

Answer 2

anything for which a cost calculation is performed

eg. a product, a service, a department, an activity etc.

Question 3

Cost Accumulation

Answer 3

collection of cost data in an organized way by means of an accounting system

Question 4

Direct Costs

Answer 4

can be conveniently and economically traced to a cost project (tracing)
eg. parts, assembly line wages and salaries

Question 5

Indirect Costs

Answer 5

cannot be conveniently or economically traced to a cost object. Instead of being traced these costs are allocated to a cost object in a rational systematic manner
(allocating)

eg. Electricity, Rent, Plant Administration Costs

Question 6

Variable Costs

Answer 6

Changes in total occur in proportion to changes in the related level of activity or volume
On a per/unit basis, variable costs are constant

Question 7

Fixed Costs

Answer 7

Remain unchanged in total regardless of changes in the related level of activity or volume
On a per/unit basis, fixed costs change inversely with the level of production (more output = lower cost/unit)

Question 8

Cost Leadership

Answer 8

establishing a competitive advantage by having the lowest cost of operation in the industry.
example: walmart

Question 9

Product Differentiation

Answer 9

product differentiation is the process of distinguishing a product or service from others, to make it more attractive to a particular target market
example: apple

Question 10

Value chain analysis

Answer 10

is the sequence of business functions by which a product is made progressively more useful to customers.
example: R&D, design of product, production, marketing, distribution, customer service

Accountants provide information to all of these departments

Question 11

Key success factors

Answer 11

Cost and efficiency
quality
time
innovation
sustainability

Question 12

Planning consists of

Answer 12

• selecting and organization’s goals and strategies
• predicting results under various alternative ways of achieving those goals
• deciding how to attain the desired goals
• communicating the goals and how to achieve them to the entire organization

Question 13

Budget

Answer 13

is the quantitative expression of a proposed plan of action by management and is an aid to coordinating what needs to be done to execute that plan

Question 14

IMA

Answer 14

institute of management accountants 
it identifies the following standards 
competence 
confidentiality
integrity 
credibility

Question 15

Cost Driver

Answer 15

what ever generates a cost in a given time

Question 16

The relevant range

Answer 16

the band of normal activity level or volume in which there is a specific relationship between the level of activity and the cost in equation

fixed costs are fixed in that relevant range