Management Accouting

Question 1

Direct costs

Answer 1

Costs that can be easily and conveniently traced to a unit of product or other cost objective

Question 2

Indirect costs

Answer 2

Costs cannot be easily and conveniently traced to a unit of product or other cost object

Question 3

Total cost formula

Answer 3

Direct materials + direct labour + direct expenses = prime cost + production overheads = production cost + other overheads = total cost

Question 4

Relevant costs

Answer 4

future costs that will be changed by the decision - petrol costs

Question 5

Irrelevant costs

Answer 5

costs that will not be affected by the decision - car tax

Question 6

Fixed costs are characterised as

Answer 6

• total fixed cost remains the same even when the activity level changes
• fixed cost per unit goes down as activity level goes up

Question 7

Variable costs

Answer 7

• total costs that change as activity level changes
• variable costs per unit remains the same over wide ranges of activity

Question 8

Semi variable costs

Answer 8

• 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

Question 9

Step fixed costs

Answer 9

• 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