Principles of Costing Flashcards
What are the 4 main cost classifications?
Function, Element, Nature and Behaviour
When do we use Function cost classification?
When we are producing financial accounts, we’re required to group the costs depending on which business function incurred them.
What are the 4 types of costs in Function classification?
- Cost of Sales (Production Costs)
- Selling and Distribution
- Administrative Costs
- Finance Costs
What are the 3 types of costs in Element classification?
- Materials
- Labour
- Overheads
What are the 2 types of costs in Nature classification?
- Direct Costs
- Indirect Costs
What are total direct costs also referred to by?
Prime Cost
What are direct costs?
These are costs that can directly traced to individual units of production.
What are indirect costs?
Also known as ‘overheads’ - these are costs that are incurred by the company and which cannot be traced to any one finished unit.
When would we use Behaviour classificaton?
Preparing budgets for coming years, which considerations for how costs are likely to change as activity levels change.
What are the 4 costs within the Behaviour classification?
- Variable Costs
- Fixed Costs
- Semi-Variable Costs
- Stepped Costs
If my total costs increase as my activity level increases, what type of Behavioural cost is this?
Variable Costs
If my total costs stay the same as my activity level increases, what type of Behavioral cost is this?
Fixed Costs
If my costs have a fixed and a variable element, what type of behavioural cost is this?
Semi-variable
If my total costs are fixed up to a certain level of activity, and then rise if activity goes beyond that level, what type of behavioural cost is this?
Stepped Cost
What are the aims of management accounting?
- Decision Making
- Planning
- Communicating
- Co-ordinating
- Motivating
- Controlling
What is a cost centre?
A cost centre is a part of the business for which costs can be seperately determined and the manager is responsible for controlling costs only.
What is a Revenue Centre?
A revenue centre is a part of the business for which revenues can be separately determined and the manager is responsible only for revenues. These are generally associated with selling activities.
What is a cost unit?
A cost unit is an individual unit for which the costs can be separately identified?
What is a profit centre?
A profit centre is similar to a cost centre, but has identifiable revenues in addition to costs and the manager is responsible for controlling profits.
What is an investment centre?
An investment centre is similar to a profit centre, but occurs when the manager of the centre is responsible for costs, revenues and the level of investment in assets within the division.
