Intro to MA, cost terms, concepts & classifications (lecture 2)

Question 1

Under the SOFP how are Merchandiser and Manufacturer categorized?

Answer 1

Merchandiser: Seen as a Current Asset includes Cash, Debtors, Prepaid Expenses & Merchandise Stock.

Manufacturer: Seen as a Current Asset includes Cash, Debtors, Prepaid expenses & Stock( Raw Materials, Work in progress & Finished Goods)

Question 2

Explain Costing in Service Organisations

Answer 2

Due to their nature, services can’t be stored as inventory(thus can’t be valued) as they can’t be counted, measured, inspected, tested or verified in advance of a sale.

Question 3

Cost Classifications for predicting cost behaviour

Answer 3

Variable-In total: Total Variable costs changes as activity level changes.
Variable-Per unit: Variable cost per unit remains the same over wide ranges of actvity

Fixed-In total: Total Fixed cost remains the same even when the activity level changes.
Fixed-Per unit: Fixed cost per unit goes down as activity level goes up.

Question 4

What is an opportunity cost?

Answer 4

It’s the potential benefit that is given up when one alternative is selected over another

Question 5

What is a Sunk Cost?

Answer 5

Cost that has already been incurred & can’t be recovered.(should be ignored when making decisions)