Management accounting Flashcards
What is a cost ?
Cost is a resource sacrificed or forgone to achieve a specific objective
What is a direct cost ?
Costs that can be easily and conveniently traced to a unit of product or other cost objective e.g. materials and labour
What is an indirect cost ?
Costs cannot be easily and conveniently traced to a unit of product or other cost object e.g. rent and utilities
What is a total variable cost ?
Where volume of activity increases with material costs
What is a unit variable cost ?
Where the costs of the materials doesn’t change with volume of activity
e.g. If every chair a company produced required 2kg of wood, costing £40 per unit
What is a total fixed cost ?
Where production overheads e.g. lights and rent doesn’t change with volume produced
e.g. regardless of many chairs the company produces, the rental cost of the factory will be the same
What is a unit fixed cost ?
The fixed cost per unit decreases as more units are produced
What is a semi variable cost ?
Costs that have both a fixed and variable element
E.g. if the electricity cost for the factory has a standing
charge and a cost per unit produced
What is a step fixed cost ?
Costs that are constant for different levels of activity
E.g. if for each 1000 chairs the company produces, they need to employ an inspector
What is a relevant cost ?
Future costs that will be changed by a decision
What are irrelevant costs ?
Costs that will not be affected by a decision
What is an opportunity cost ?
The profit lost when one alternative is selected over another
What is a replacement cost ?
The cost of purchasing a substitute asset for the current asset being used by a company
What is a sunk cost ?
A cost already incurred regardless of what action is taken. Therefore, NOT a relevant cost
How to calculate contribution per unit ?
contribution per unit = selling price per unit - variable cost per unit
