Intro to basic cost concepts/terms Flashcards
management accounting can be defined as?
the processes and techniques that focus on the effective and efficient use of organisational resources to support managers in their tasks of enhancing both customer value and shareholder value
what are costs?
Resources given up to achieve a particular objective Measured in monetary terms
what is a cost object?
An item for which management wants a separate measure of costs
what is a cost driver?
A factor or activity that causes a cost to be incurred
what is level of activity?
the level of work performed in org (e.g. hours worked, units produced)
cost classifications?
Different cost classifications are used for different purposes, and the same cost can be classified in a number of ways depending on the intended use of the cost information.
what are the behaviour classification?
variable cost and fixed cost
behaviour: variable cost?
changes in total proportion to changes in level of activity (e.g. cost of electricity used to manufacture a product)
behaviour: fixed cost?
Remain unchanged in total despite changes in the level of activity (e.g. rent paid for factory remains unchanged no matter how many units we produce)
traceability classification?
direct (can be directly identified with or trace/linked to cost object in economic manner) and indirect cost (cannot be above)
timing of expense classification
period and product cost
timing of expense classification: period cost?
The costs expensed in the accounting period in which they are incurred rather than being attached to units purchased or produced. (e.g. salaries of sales staff, advertising expense, depreciation of office equipment)
timing of expense classification: Product cost?
i. The cost assigned to goods/services that were manufactured or purchased for
e.g. optus, vodaphone resell phones
resale.
ii. Regarded as a part of the asset / inventory until goods are sold.
classification: Manufacturing/ product costs ?
direct material
direct labour
manufacturing overhead (indirect manufacturing costs)
classification: Manufacturing/ product costs define each one
Direct material:
- Materials that are a part of the final product
- Can be directly traced and linked to product in an economic manner
Direct Labour
- All manufacturing labour that can be directly traced or linked to cost object (e.g. wages paid to production workers, workers’ compensation insurance and superannuation contributions)
Manufacturing overhead (indirect manufacturing costs) - All manufacturing costs other than direct material and direct labour. (e.g. the cost of indirect material, indirect labour, depreciation and insurance on factory equipment)
Manufacturing Overhead include?
overtime premium and cost of idle time
Manufacturing Overhead over time premium and cost of idle time defintiion
Overtime premium: extra wages paid to an employee who works beyond normal working hours.
Idle time: the cost of employees’ non-productive time, arising from events such as equipment breakdowns or new setups of production runs.
what is prime cost?
direct material + direct labour
what is conversion cost?
direct labour + manufacturing overhead
converting what is made from material with labour and MO
classification: value chain?
upstream, manufacturing and downstream costs
Basis of classification: controllability
controllable cost and uncontrollable cost
Basis of classification: controllability definition of both
Controllable cost
a cost that a specific manager can control or significantly influence
Uncontrollable cost
a cost that a manager cannot control or significantly influence.
what is High-Low method/
High-Low Method is used to estimate cost functions by considering data at the highest and lowest levels of ACTIVITY (cost driver) within a certain range.
High Low method - cost function formula?
Total cost = Fixed Cost + VC per unit of activity x No. of units
what is relevant range?
is the range of activity over which a particular cost behaviour pattern is assumed to be valid
