Flashcards
Cost Classification
Flashcards do conjunto (48)
- 1explain and illustrate production and non-production costs1
- 2describe the different elements of non-production cost – administrative, selling, distribution and finance1
- 3describe the different elements of production cost – materials, labour and overheads2
- 4explain the importance of the distinction between production and non-production costs when valuing output and inventories1
- 5explain and illustrate with examples classifications used in the analysis of the product/service costs including by function, direct and indirect, fixed and variable, stepped fixed and semi variable costs1
- 6describe and illustrate, graphically, different types of cost behaviour1
- 7use high/low analysis to separate the fixed and variable elements of total costs including situations involving semi variable and stepped fixed costs and changes in the variable cost per unit1
- 8explain the advantages and disadvantages of using high low method to estimate the fixed and variable element of costing2
- 9explain the structure of linear functions and equations2
- 10explain and illustrate the concepts of: -cost objects -cost units -cost centres -Cost Cards (Give Examples)1
- 11explain and illustrate the use of codes in categorising transaction.1
- 12What are the four ways cost can be classified?• Element – classify costs as to whether they relate to material, labour or expenses. This is useful for cost control.
• Nature – classify costs as to how they relate to production. Are they directly involved in the production of the product/service or indirectly involved in production? This is useful for cost accounting.
• Function – classify costs based on whether they are production costs or non-production costs. This is useful for the financial accounts.
• Behaviour – classify costs based on how they change in relation to levels of output or activity. This is useful for budgeting and decision making. - 13What are the classifications of cost be elements?• Materials – all costs of materials purchased for production or non-production activities. For example, raw materials, components, cleaning materials, maintenance materials and stationery.
• Labour – all staff costs relating to employees on the payroll of the organisation.
• Expenses – all other costs which are not materials or labour. This includes all bought-in services, for example, rent, telephone, sub-contractors and costs such as the depreciation of equipment. - 14Costs can be classified by nature. Explain the following: Direct Costs Prime Cost Indirect costs OverheadsDirect costs are costs which can be directly identified with a specific cost unit or cost centre.
There are three main types of direct cost – direct material, direct labour and direct expenses. The direct costs associated with a shirt (cost unit) manufactured by a clothing company would be:
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direct materials – cloth for making shirts
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direct labour – the wages of the workers stitching the cloth to make the shirts
• direct expenses – the royalties paid to a designer.
The total of direct costs is known as the prime cost.
Indirect costs
Indirect costs are costs which cannot be directly identified with a specific cost unit or cost centre.
The indirect costs associated with a shirt (cost unit) manufactured by a clothing company would be:
• indirect materials – these include materials that cannot be traced to an individual item for example cleaning fluids for cleaning the machinery
• indirect labour – the cost of a supervisor who supervises the shirt makers
• indirect expenses – the cost of renting the factory where the shirts are manufactured. - 15—
- 16(a) Which of the following would be classed as indirect labour? A Assembly workers B A stores assistant in a factory storeroom C Plasterers in a building company D An audit clerk in an accountancy firm (b) Direct costs are: A costs which can be identified with a cost centre but not a single cost unit B costs which can be identified with a single cost unit or cost centre C costs which can be attributed to an accounting period D none of the above(a) B Store assistants are not directly involved in producing the output (goods or services) of an organisation.
(b) B This is a basic definition question. Direct costs are costs which can be identified with a single cost unit, or cost centre. - 17Explain the difference between production costs and non-productions costs. Give examples of both.Production costs
Production costs are costs that relate to the manufacture of a product or provision of a service. These cost as are found in the cost of sales section of the statement of profit or loss.
Production costs, such as direct materials, direct labour, direct expenses and production overheads, are included in the valuation of inventory.
Non-production costs
Non-production costs are costs that are not directly associated with the production of the businesses output.
Non-production costs, such as administrative costs, selling costs and finance costs, are charged to the statement of profit or loss as expenses for the period in which they are incurred. Non-production costs are not included in the valuation of inventory. - 18—Overalls for machine workers 1
Cost of printer cartridges in general office 4
Salary of factory supervisor 1
Salary of payroll supervisor 4
Rent of warehouse for storing goods ready for sale 3
Loan interest 5
Salary of factory security guard 1
Early settlement discounts for customers who pay early 2
Salary of the Chairman’s PA 4
Road tax licence for delivery vehicles 3
Bank overdraft fee 5
Salesmen's commissions 2
- 19Explain the classifications by behaviour.Variable costs are costs that vary in direction proportion with the level of activity. As activity levels increase then total variable costs will also increase.
A fixed cost is a cost which is incurred for an accounting period, and which, within certain activity levels remains constant.
Stepped fixed costs
:This is a type of fixed cost that is only fixed within certain levels of activity. Once the upper limit of an activity level is reached then a new higher level of fixed cost becomes relevant.
Semi-variable costs contain both fixed and variable cost elements and are therefore partly affected by changes in the level of activit - 20ILCB has the following information relating to one of its products: • Direct material cost per unit $1 • Direct labour cost per unit $3 • Variable production cost per unit $3 • Fixed production overhead $30,000 per month • Budgeted production 15,000 units per month Required: Calculate the cost per unit and the total cost of the budgeted monthly production
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- 22—Total fixed cost is shown in graph 4
Total variable cost is shown in graph 1
Total semi-variable cost is shown in graph 3
Fixed cost per unit is shown in graph 6
Variable cost per unit is shown in graph 4
A stepped fixed cost is shown in graph 2
- 23What is the formalue for working out the total cost of a semi-variable cost?Total fixed costs + (Variable cost per unit × Activity level)
- 24Explain the steps for the High/Low Method
- 25What is the formulae for calculating the variable cost per unit?
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- 34What is a code?A code is a system of symbols designed to be applied to a classified set of items, to give a brief accurate reference, which helps entry into the records, collation and analysis.
- 35A cost coding system is such that the first two letters of the code represent the cost centre, the third letter the type of expense and the fourth letter the detail of the expense. Codes are as follows: • S = Sales representative’s expenses • ED = Eastern Division • P = Petrol What is the correct code for an Eastern Division’s sales representative’s petrol expenses?EDSP
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- 37—B
300 for York followed by 500 for travel costs followed by 630 for the sales function.
- 38The accounting system normally contains codes to identify: (i) the type of cost (ii) the responsibility centre (iii) the supplier. Which of these options are correct? A (i) only B (ii) only C (i) and (ii) D (i) ,(ii) and (iii)D
Codes representing the type of cost and responsibility centre will be used in the main ledger. The purchase ledger will contain codes representing individual suppliers so that details of supplier invoices and payments made to suppliers can be quickly accessed. - 39An indirect cost should: A be coded to a cost unit B be coded to the different costs centres that incur the cost C be coded to an overhead cost centre D not be coded at allC
It is more usual to code overhead costs to an overhead cost centre before sharing the costs to the cost centres that incur the cost. - 40Which of the following costs should not be included in the inventory valuation of a manufacturing business? A Depreciation on the plant and machinery B Salary of salesman C Factory supervisor’s salary D Electricity for factoryB
B is a non-production costs and as such should not be used to value inventory. - 41A shop carries out repairs on customers’ electrical items, e.g. televisions, DVD players, etc. Which of the following is an example of an indirect variable cost? A Business rates for repair shop B Salary of repair shop supervisor C Repair person paid per hour worked D Electricity for recharging repair toolsD
A Indirect and fixed
B Indirect and fixed
C Direct and variable
D Indirect and variable - 42—B
- 43—D
- 44The telephone costs of a business are likely to be classified as a stepped fixed cost. Is this statement TRUE or FALSE? A True B FalseB FALSE
Telephone costs are likely to consist of a fixed element for line rental and a variable element for calls, hence are semi-variable. - 45A company has a performance related pay scheme in operation. What is the most appropriate cost classification for the salaries of the managers? A Fixed cost B Stepped fixed cost C Semi-variable costC
- 46Which of the following statements is correct? A Only direct production costs should be included in inventory valuation B All indirect costs should be treated as non-production costs. C The sum of direct costs is known as prime cost. D Indirect costs per unit are always larger than direct costs per unitC
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Informações
- Descrição
- Degree F2 Managment Accounting (A.The nature, source and purpose of management information) FlashCards sobre Cost Classification, criado por Jay Ali em 10-06-2016.
- Criado por
- Jay Ali
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