Module 2 Classification of Costs Flashcards
1
Q
Controllable costs
A
- Machine costs incurred solely in the production of a specific product or group of products under a managers control
- The salaries of staff working in the electrical goods department of a retail store; and
- The heating costs at a branch premises.
2
Q
Non-controllable costs
A
- A share of the salary of the manager in a factory which has multiple departments;
- A share of the building occupancy costs charged to the electrical goods department in a retail store (such costs are only controllable in total by general management)
- A share of the head office costs charged to a branch.
3
Q
Types of responsibility centre
A
- Cost centre
- Profit centre
- Investment centre
4
Q
What is a cost centre
A
- Part of a business that does not generate any revenue
- manager responsible only has discretion over costs and has no influence over revenues or investment decisions
5
Q
What is a profit centre
A
- The manager is responsible for both costs and revenue and, therefore, profit
6
Q
What is an investment centre
A
- A manager has the authority to undertake capital expenditure (purchase fixed assets) as well as managing revenues and related costs.
7
Q
Cost centres of a manufacturing business
A
- Production
- Service
- Administration
- Sales
- Distribution
8
Q
Direct costs
A
- Direct costs are those which can be identified easily with a product or service
- Prime cost = direct material cost + direct labour cost + direct expenses
9
Q
Indirect costs
A
- Indirect costs are those which cannot be easily identified with one particular product or service
- Charged to a cost unit using some estimated basis
10
Q
4 types of costs
A
- Fixed
- Variable
- Semi variable
- Semi fixed/step
11
Q
Relevant Cost
A
A cost or saving which will arise as a result of making a business decision
12
Q
Sub-classifications of relevant cost
A
- Avoidable costs
- Incremental costs
- Opportunity costs
13
Q
Avoidable and Unavoidable Costs
A
- An avoidable cost is one which will cease to be incurred as a result of a decision
- An unavoidable cost is one that will continue after a decision has been taken
- Only the avoidable costs should be considered
14
Q
Incremental Costs
A
- An incremental cost is an additional cost that is only incurred if you follow a course of action but is not incurred if such action is not taken
- Buying a car for the first time and then cost of parking permit
15
Q
Sunk Costs
A
- A sunk cost is a cost which has already been incurred and is irrecoverable
- Irrelevant to the decisionmaking process
19
Q
Relevant cost flow chart staff
A
21
Q
Relevant cost flow chart materials
A
