Elements of Costing CH2 Cost Classification

Question 1

Costs by Function

Answer 1

• Production Costs - material/labour/machinery
• Selling and distribution costs - e.g. advertising/delivery/sales staff wages
• Administration costs - Managing and co-ordinating e.g. management/secretarial/accounting
• Finance costs - Costs with raising money e.g. interest/overdraft costs.

Question 2

Direct Cost

Answer 2

A cost that can be directly identified with making a product or providing a service

Question 3

Indirect cost

Answer 3

A cost which cannot be directly identified with making the product or providing the service

Question 4

Capital and Revenue Expenditure

Answer 4

Capital - non current assets

Revenue - costs of running the business e.g. raw materials / wages etc.

Question 5

Cost centre

Answer 5

A location, function or item of equipment in respect of which costs may be ascertained and related to to cost units for control purposes.