MAPS - Chapter 1 - Intro to MAPS Flashcards
What is a cost unit?
A unit of output to which cost can be charged
What is a composite cost unit?
Units of output which comprise of two variables
What’s a responsibility centre?
A segment of the business for which a manager is accountable
What is a cost centre?
A segment of the business to which costs can be charged
What are positives of cost centres?
Allows segmented costs which can assist with control of the business
What is a profit centre?
Segments of the business to which costs can be charged, revenue identified and profit calculated
What is a revenue centre?
Segments of the business where sales revenue from the product sold or service provided is measured
What differs cost and profit centres?
Cost centres do not have any significant revenue
What is an investment centre?
Segments of the business where profit is compared with the amount of money invested in the centre
What do you calculate at an investment centre?
Return on investment (ROI)
How do you calculate ROI?
(Profit/Investment) x 100
What are the three main sections of a manufacturing business?
- Factory
- Warehouse
- Office
How can costs be classified?
- By element
- By nature
- By function
- By behaviour
How can cost be classified by element?
- Materials costs
- Labour costs
- Other expenses such as rent
Why can classifying costs by element be beneficial?
Allows managers to see the breakdown into different kinds of cost
What does classification of costs by nature mean?
Whether a cost is a direct cost or an indirect cost
What is a direct cost?
A cost that can be identified directly with each unit of output
What is an indirect cost?
All costs, other than those identified as direct costs
What is the total of direct costs called?
Prime costs
What does classification by function mean?
It is the costs incurred in different sectors of the business. Basically what department they relate to
What does classification of costs by behaviours include?
- Fixed
- Semi-variable
- Variable
- Stepped
How do you know which classification to use?
Whichever suits the business’ needs the best
Why classify costs by element?
Can look for high cost elements in order to make savings
Why classify costs by nature?
Looking at direct and indirect costs to o wee where savings can be made
Why classify costs by function?
Look at different departments and see which are high-spending
Why classify costs by behaviour
Business could make savings by altering the balance between fixed and variable costs
What does classifying costs help management with?
- Decision-making
- Planning
- Control
How to calculate costs?
- Identify units of output
- Calculate units of output for particular time
- Calculate direct costs
- Calculate corresponding indirect costs
- Calculate total cost of unit of output
What is another name for the total cost?
Absorption cost
Formula to calculate cost of a unit of output?
(Direct costs + indirect costs) / units of output
What’s a total cost statement?
Add direct costs
= Prime costs
Add Production overheads
= Production cost
Add non-Production overheads
= Total Cost
How to calculate profit?
Revenue - Total Cost
What are product costs?
Cost to he is a part of manufactured product, prime cost + production overheads. This is included in closing inventory
What are period costs?
Costs not part of manufactured product. They are incurred over a period of time and cannot be included in closing inventory, will be in P+L
