cost classification

Question 1

costs include:

Answer 1

• expenses (payroll check)
• assets (also an expense. NCAs are charged over a period of time)

Question 2

how to calculate depreciation

Answer 2

costs (of machine/property) / economic life

Question 3

Costs can be classified by:

Answer 3

1. FUNCTION : Production / Non-production
2. NATURE/ELEMENT : Material, Labor and Expenses
3. TRACEABILITY : Direct and Indirect
4. COST BEHAVIOUR : Fixed cost, Variable cost, Semi-
   variable/Semi-fixed/Mixed cost and Stepped cost

Question 4

what are the other ways in which costs can be classified: by

Answer 4

• behaviour
• location
• function
• person responsible for their control
• type
• traceability

Question 5

cost classification by function

Answer 5

• production
• non-production

Question 6

production costs

Answer 6

both direct+indirect, variable+fixed relating to manufacturing/factory cost.
these costs accumulated provide the value of goods in inventory and form ‘cost of goods’ value when sold

Question 7

examples of production costs

Answer 7

direct material/
direct labour/
direct expenses/
variable production overheads/
fixed production overheads

Question 8

non-production costs

Answer 8

expenses incurred independent of production
include admin, selling, distribution, finance costs

can have the character of ‘period’ costs- relate to period of time in which they occur
taken directly to the income statement as expenses in the period in which they’re incurred

Question 9

examples of non-production costs

Answer 9

admin costs
selling+distribution expenses
finance costs

Question 10

admin costs

Answer 10

costs of running general admin

Question 11

selling costs

Answer 11

costs associated with marketing+taking orders

Question 12

distribution costs

Answer 12

costs of distributing finished products

Question 13

finance costs

Answer 13

costs incurred in financing an organisation

Question 14

cost classification by nature/element

Answer 14

• material
• labour
• expenses

Question 15

cost classification by traceability

Answer 15

• direct
• indirect

Question 16

direct costs

Answer 16

a cost that can be traced in full to the product or service being costed
measurable in terms of quantity + value

Question 17

indirect costs

Answer 17

(or overhead) is a cost that is incurred in the course of making a product/providing a service, but can’t be traced directly and in full to the product or service

Question 18

indirect material, labour, expense costs are grouped into

Answer 18

production overheads

Question 19

examples of non production overheads
(asdr)

Answer 19

administration OH
selling OH
distribution OH
research OH

Question 20

direct material expenses of production

Answer 20

materials traceable to units of production (wood->furniture)

Question 21

indirect material costs

Answer 21

not traceable into specific units (tracing sand paper in sanding machinery/screws and nuts in a car- negligible

Question 22

direct labour costs

Answer 22

directly involved in making units

Question 23

indirect labour costs

Answer 23

not directly involved with specific units
e.g. not wage based- maintenance engineers

Question 24

direct expenses

Answer 24

e.g. a royalty that has to be paid for each unit of production
renting a machine charged on $1,000 per unit made

Question 25

indirect expenses

Answer 25

e.g. rent+heating for the factory

Question 26

aggregation of DMC, DLC, DEC are known as

Answer 26

prime costs

Question 27

IMC + ILC + IEC

Answer 27

overheads

Question 28

total material + labour + expense

Answer 28

total product cost

Question 29

conversion costs- converting materials to finished goods

Answer 29

combined costs of converting the materials into finished products consists of **direct labor** + **factory overhead**

Question 30

cost card

Answer 30

statement of the total cost of one unit of a product

Question 31

IS all fixed cost non-controllable? YES/NO

Answer 31

NO Fixed cost divided by 2 a) Commited –> Support the long term needs of the business b) Discretionary –> On the decision of budget holder, could be raised/lowered

Question 32

Importance of cost unit information

Answer 32

Determine a selling price Decide what to produce Help with cost control Plan & budget

Question 33

Match goods in invoice with ??

Answer 33

GRN (internal_

Question 34

Match price of goods in invoice with ??

Answer 34

Purchase order

Question 35

Characteristics of effective coding system

Answer 35

1) Logical 2) Concise 3) Consistent 4) Unique 5) Expandable

Question 36

Chart of Accounts

Answer 36

A document that contains comprehensive details on the classes of codes and the accounts and items they identify

Question 37

Expense

Answer 37

Decreases in economic benefits during the accounting period in the form of outflows, depletions of assets, or incurrences of liabilities.

Question 38

cost object

Answer 38

activity for which separate measurement of costs is desired

Question 39

cost behaviour pattern

Answer 39

the way costs are affected by changes in LOA

Question 40

effects of changing activity on unit costs: VC per unit FC per unit total cost per unit

Answer 40

constant falls falls