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Questions and Answers
What type of cost tends to vary directly with the volume of output?
Which of the following is an example of a Semi-variable cost?
What type of cost remains the same even if the level of activity or output changes?
What is the term for the study of how costs behave in response to changes in the level of activity or output?
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What type of cost has both fixed and variable components and is partly affected by changes in the level of activity?
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Which of the following is an example of a Variable cost?
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What is the total variable cost per unit of the product?
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What type of costs are directly related to the production of a product or service?
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What is the cost of direct materials per unit of the product?
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What is the term for the way costs change as the level of activity changes?
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What is the total fixed production overhead per annum?
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What is the direct labor cost per unit of the product?
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What type of cost tends to be unaffected by increases or decreases in the volume of output?
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What is the prime cost per unit of the product?
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What is an example of a fixed cost?
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What type of cost is neither entirely fixed nor entirely variable?
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What is the total production cost per annum?
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What is an example of an indirect material?
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What is the classification of costs that are not directly associated with the production of the business's output?
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What type of fixed cost is fixed in nature within certain levels of activity?
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Study Notes
Cost Classification
- Costs can be classified as fixed, variable, semi-variable, and indirect costs.
Fixed Costs
- Costs that remain unaffected by changes in the level of activity.
- Examples: rent, straight-line depreciation, and salaries of factory supervisors.
Stepped-Fixed Costs
- Fixed costs that change at certain levels of activity.
- Examples: electricity and water bills.
Variable Costs
- Costs that vary directly with the volume of output.
- Examples: raw materials, direct labor, sales commissions.
Semi-Variable Costs (Semi-Fixed Costs)
- Costs that contain both fixed and variable components.
- Examples: electricity and water bills, indirect materials, indirect labor, and indirect expenses.
Indirect Costs
- Costs that cannot be directly traced to the product.
- Examples: indirect materials (lubricants), indirect labor (salaries of office staff), and indirect expenses (heating and lighting for the factory).
Production Costs
- Costs related to the manufacturing of a product or provision of a service.
- Examples: costs found in the cost of sales section of the statement of profit or loss.
Non-Production Costs
- Costs not directly associated with the production of the business's output.
- Examples: administrative costs, selling costs, and finance costs.
Cost Behavior
- The way costs change as the level of activity changes.
Calculation of Product Cost
- Direct materials + Direct labor + Direct expenses = Prime cost/Total variable cost
- Prime cost/Total variable cost + Fixed production overheads = Total production cost
- Total production cost + Non-production overheads = Total cost
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Description
Understand the concepts of fixed and stepped costs in cost accounting, including how they relate to output and accommodation requirements. Identify the relevant cost ranges and their implications.
