Principles of costing - lesson 1 basics Flashcards
What is the difference between financial accounting and managment accounting
Financial- usually for external purpouses e.g HMRC
Managment - used to internal purposes, e.g budgets, reducing costs, increase selling price or undertake an advertising campaign. There is no standard format for management accounts.
Managment accounting is used to look at current, historical and future spending
What is a cost unit
**how much one unit of output has cost ** (e.g chair manufacture will need to determine how much materials such as wood and fabric is needed to produce one chair and how much this costs).
extra info - harder for a service. A hospital for example, may measure in number of patients a day or number of bed occupied a week as their cost unit
What is a cost centre
Areas of the business where its various costs can be charged Different types of business have different names for their cost centres.
What is a revenue centre
is a cost relevant to a department of a business that is responsible for generating income.
Example- Any part of the business can be a revenue centre. E.g for a supermarket chain, each individual one is a revenue centre.
What is a proit centre
centre where we can calculate the profit via its cost and income/sales
What are investment centres
centres where the manager will look not only at the various income and costs, but also level of investment the business has made. Investments can range from non-current assets, to inventory (current asset).
We can clarify costs to a buisness into 5 different groups
What is a cost by function
cost relating to an activity causing the cost e.g (selling and distrbution cost, admin cost, production cost)
We can clarify costs to a buisness into 5 different groups
What is cost by element
Identifying costs into one of three areas. materials, labour, expenses (overheads).
Sales team would be classes as labour. Overheads are anything that cant be categorised as material or labour, such as rent and insurance.
We can clarify costs to a buisness into 5 different groups
What is cost by nature
Two categories; direct and indirect costs.
Direct costs can be direct materials (materials for a unit), direct labour (vet), direct expenses (directly related to product of a unit). Indirect costs are things that cannot be directly linked to producing a unit.
We can clarify costs to a buisness into 5 different groups
What is cost by behaviour
Categorised into 4 sections; fixed costs, variables costs, semi-variable costs and stepped costs
Important to note that these clarifications refer to overall costs, not cost per unit.
What are fixed costs, variables costs, semi-variable costs and stepped costs
fixed and variable either do or dont change with level of output. E.g rent doesnt change with output.
- Semi-variable costs are combination. E.g a call charge would differ each month depending on how many calls you made, but a landline charge would be constant.
-Stepped costs are ones that remain constant up until certain level of activity is reached and then rise to higher fixed costs.
What are period and product costs
Product cost is a cost that relates to the product of service. Costs of sales are included as a product cost.
Period cost is a cost that relates to a time period. Expenses are period costs.
Split these into period and product costs
product - service, period - expenses such as rent
Product cost is a cost that relates to the product of service. Costs of dales are included as a product cost.
Period cost is a cost that relates to a time period. Expenses are period costs.
Are each of these expenses indirect/direct and fixed/variable
Alpha/numeric mix can be used as coding for diffferent cataogeries on the system
period costs - expense that isnt directly linked to production (rent)
Group these into admin cost, selling and distribution cost, production cost, finance cost
