Costing: Chapter One

Question 1

What is the reason for classifying costs by element?

Answer 1

Classifying costs as to whether they relate to material, labour or expenses can be useful for cost control.

Question 2

What is the reason for classifying costs by function?

Answer 2

Classifying costs based on whether they are production costs or non-production costs is useful for financial accounts.

Question 3

What is the reason for classifying costs by nature?

Answer 3

Classifying costs as to whether they are directly or indirectly involved in productions is useful for cost accounting.

Question 4

What is the reason for classifying costs by behaviour?

Answer 4

Classifying costs based on how they change in relation to levels of output or activity is useful for budgeting and decision making.

Question 5

When classifying costs by function, what are production costs?

Answer 5

Materials, Labour and Expenses.

Question 6

When classifying costs by function, what are non-production costs?

Answer 6

Administration and distribution.

Question 7

How do total fixed costs behave when activity increases?

Answer 7

Total fixed costs stay the same even as activity increases.

Question 8

How do fixed costs per unit behave as activity increases?

Answer 8

Fixed costs per unit decrease as activity levels increase.

Question 9

What is a stepped cost?

Answer 9

A cost that remains fixed to a certain activity level and then rises to a new higher fixed level of activity goes beyond a certain amount.

Question 10

What is the high-low method used for?

Answer 10

To work out the variable and fixed elements of a semi-variable cost.