The costing system

Question 1

What is a costing system?

Answer 1

A costing system is used by an organisation to collect info about costs and use that info for decision making, planning and control

Question 2

What are the differences between financial accounting and cost accounting?

Answer 2

Financial Accounting includes using financial statements to assess financial performance summarised for the year at the year-end.

Cost Accounting includes using management reports eg: forecasts, to assist in decision making, planning and control.

Question 3

Name the 3 elements of cost?

Answer 3

Materials
Labour
Expenses

Question 4

What is classed as materials?

Answer 4

Raw materials and components
Products bought for resale

Question 5

What is classed as Labour?

Answer 5

Refers to the payroll costs of all employees: wages paid to those who work on the production line

Question 6

What is classed as expenses?

Answer 6

Is a term which refers to all other running costs of the business that can’t be included under the other headings eg: Rent, Rates, Heating and Lighting.

Question 7

What is meant by the nature of costs?

Answer 7

Whether the costs are direct and indirect costs (overheads).

Direct costs are costs which can be directly identified which each unit of output, whereas Indirect costs are costs which cannot be identified directly with each unit of output.

Question 8

Explain each direct cost?

Answer 8

Direct materials - Cost of materials used to make the items produced
Direct Labour - The cost of paying the employees who carry out the production
Direct expenses - None

Question 9

Explain each Indirect cost?

Answer 9

Indirect materials - cost of materials that can’t be directly linked to specific items eg: Replacement saw
Indirect labour - Cost of employing people in the factory eg: Cleaners
Indirect expenses - Cost of running a factory

Question 10

Name the 3 non-production costs?

Answer 10

Administration
Selling and distribution
Finance