Costing - 25% Flashcards
What is a cost centre?
- a collecting place for costs before they are analysed further
What is a Cost Unit
- A unit of product or service to which costs can be related
What is a cost object ?
- anything a user of accounting information wants to know what cost of
What is an Economic Cost?
- based on the cost of the alternative chosen and the benefit that the best alternative would have provided if chosen
What is Economic Value ?
The most someone is willing to give up in £/$ to obtain a product or service
Give three examples if a cost center
Department
Machine
Project
Give two examples of a cost unit
- number of patients in a hospital or how many days a patient has stayed at the hospital
- how many passengers are on the transport or how many km a transport has been done.
Give 3 examples of a cost object
- product
- service
- sales territory
What are the 3 cost classifications by nature ?
Material
Labour
Expenses
What are the 3 cost classifications by function
- production cost
- administration cost
- selling and distribution costs
What are the 2 cost classifications by behaviour
- fixed cots
- variable costs
Explain fixed costs
- these costs are not effected by the change in activity level
Explain variable costs
These costs ARE effected by the levels of activity
What’s is a direct cost?
- A cost that can be traced in FULL to the product, service or department that is being costed
What in an indirect cost ?
This us a cost that can NOT be traced directly to the product service or department
What is the prime cost formula
Direct Material + Direct labour + Direct expenses = Prime Cost
What is the formula for overheads ?
Indirect Material + indirect labour + indirect expenses = overheads
What is the formula for total costs ?
Direct material + direct labour + direct expenses + indirect material + indirect labour + indirect expenses = total costs
What is an avoidable cost ?
- a cost which would not be incurred if the activity to which it related did not exist
What is an opportunity cost?
The benefit that would have been earned but which has been given up by choosing one option instead of another
What is a controllable cost ?
An item of expenditure which can be directly influenced by a given manager within a given time span
Differential Cost
The relevant difference in the cost of alternatives
What are the 5 relevant costs
- Avoidable costs
- opportunity cost
- controllable cost
- differential cost
- Relevant cost of labour
Relevant cost of labour
The direct labour costs PLUS the contribution loss by diverting labour to make another product
What are the 2 non- relevant costs ?
- sunk cost
- fixed cost
What is a sunk cost
- this is a past ( historical) cost which is not directly relevant in decision making
What is a fixed cost?
Unless given an indication to the contrary assume fixed costs are irrelevant costs and variable costs are relevant
Relevant costs of materials - not owed
- current replacement cost
Relevant cost of Materials - owned
Will be replaced but may not be replaced if it is higher than current resale value and value if put to an alternative use
What is a responsibility center?
This us a department or organisational function whose performance us the direct responsibility of a specific manager
What is a profit centre?
-A profit center is similar to a cost center
-They are responsible for costs and revenues
What is an investment centre?
- profit centre with additional responsibilities
- responsible for costs and revenues
- responsible for capital investments and finance i g
What is a controllable cost ?
This is a cost which can be influenced by management decisions and actions
What is an uncontrollable cost ?
This is any cost that cannot be affected by management within a given Time span
What are revenue center management responsible for ?
Revenue only
What are cost Center managers responsible for ?
Cost only
