Module 1 - Managerial Accounting and Cost Concepts

Question 1

Who is financial accounting focused on?

Answer 1

they are focused on reporting financial information to external parties such as stockholders, creditors & regulators.

Question 2

Who is managerial accounting focused on?

Answer 2

they are focused on providing information to managers for use within the business.

Question 3

What are the 3 vital activities that managers perform?

Answer 3

1. Planning
2. Controlling
3. Decision making

Question 4

What are the 5 types of cost classification?

Answer 4

1. assigning costs to cost objects
2. Manufacturing companies
3. Preparing financial statements
4. predicting cost behavior
5. making decisions

Question 5

What are direct costs?

Answer 5

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

Question 6

What are indirect costs?

Answer 6

costs that cannot be easily traced to a unit of production or other cost object.

Question 7

What is another name for indirect costs?

Answer 7

common costs

Question 8

Direct materials, direct labor and manufacturing overhead are elements of that classification of costs?

Answer 8

Manufacturing costs

Question 9

What costs are included in manufacturing overhead?

Answer 9

all costs related to manufacturing except for direct material and direct labour.

Question 10

What is prime cost?

Answer 10

the combination of direct material and direct labour costs.

Question 11

What is conversion costs?

Answer 11

the combination of direct labour and manufacturing overhead costs.

Question 12

Define Prime cost?

Answer 12

Prime cost is the largest portion of cost in manufacturing, hence the “prime” cost.

Question 13

Define conversion cost?

Answer 13

The cost of converting the raw materials into a finished product.

Question 14

What are the 2 types of costs for manufacturing companies?

Answer 14

Manufacturing costs and Non-manufacturing costs.

Question 15

Assigning costs to cost objects involve what 2 types of costs?

Answer 15

Direct and indirect costs.

Question 16

What are the 2 elements of non-manufacturing costs?

Answer 16

Selling costs and administrative costs

Question 17

Define selling costs?

Answer 17

All costs necessary to secure customer orders and get the finished products to the customers.

Question 18

Define administrative costs?

Answer 18

all costs associated the general management of an organisation

Question 19

What are the 2 types of costs used in the preparation of financials statements?

Answer 19

Product costs and period costs

Question 20

Define products costs?

Answer 20

Product costs include all the costs involved in acquiring or making the product

Question 21

Define period costs?

Answer 21

Period costs include all selling costs and administrative costs expensed out in a certain period.

Question 22

What are the 3 types of costs used to predict cost behavior?

Answer 22

1. Variable costs
2. Fixed costs
3. Mixed costs

Question 23

Define variable costs?

Answer 23

A cost that varies in response to the level of activity but remains constant per unit of output.

Question 24

Define fixed costs?

Answer 24

A cost that remains constant regardless of the level of activity but will vary per unit depending on total output.

Question 25

What are the 2 types f fixed costs?

Answer 25

Committed and discretionary costs.

Question 26

Define mixed costs?

Answer 26

The combination of both fixed and variable costs.

Question 27

What are the 3 types of costs used in decision making>

Answer 27

1. Differential costs
2. Sunk costs
3. Opportunity costs

Question 28

Define differential costs?

Answer 28

Differential costs are the difference in cost between any two alternatives, it is considered a relative cost and used for decision making.

Question 29

Define sunk costs?

Answer 29

Sunk costs have already been incurred and cannot be changed now or in the future, these cost are irrelevant and are not used in decision making.

Question 30

Define opportunity costs?

Answer 30

The potential benefit that is given up when one alternative is selected over another, it is a relevant cost used in decision making.