Cost Accounting Principles

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Questions and Answers

What is one primary objective of cost accounting related to inefficiencies?

To create a budget for the entire company
To establish the selling price of products
To perform annual financial audits
To indicate inefficiencies and waste in various forms (correct)

Which of the following best describes a purpose of cost accounting concerning profit and loss accounts?

To calculate the total expenses for the year
To estimate future sales based on past figures
To determine the market share of the company
To provide data for periodical profit and loss accounts (correct)

How does cost accounting help in production efficiency?

By conducting customer satisfaction surveys
By providing historical sales data
By standardizing marketing strategies
By revealing sources of economies in production (correct)

What role does cost accounting play in price-fixing policies?

It serves as a guide for future estimates and quotations (B) Signup and view all the answers

What does the preparation of standard costs in cost accounting allow for?

Comparison of actual production costs against expected costs (D) Signup and view all the answers

Which objective of cost accounting focuses on providing continuous inventory data?

To prepare interim financial statements without stock taking (A) Signup and view all the answers

What is the significance of presenting comparative cost data over different periods?

To assist in understanding cost behavior over time (B) Signup and view all the answers

Which method provides actual figures for comparison with estimates in cost accounting?

Cost analysis techniques (A) Signup and view all the answers

What type of costs are incurred in formulating policy and controlling operations of an organization?

Administration Costs (C) Signup and view all the answers

Which of the following costs is considered a controllable cost?

Marketing Research Expenses (A) Signup and view all the answers

What are opportunity costs best defined as?

Costs arising from selecting one alternative over another and forgoing other opportunities (D) Signup and view all the answers

How are pre-production costs treated in terms of financial accounting?

As deferred revenue expenditure (D) Signup and view all the answers

Which classification of costs relates to benefits provided over future accounting periods?

Capital Expenditure (B) Signup and view all the answers

Which of the following best describes sunk costs?

Costs that have already been incurred and cannot be changed by future decisions (B) Signup and view all the answers

Which cost classification focuses on the relationship with the managerial budget holder?

Controllable Costs (B) Signup and view all the answers

What does distribution cost specifically refer to?

The costs involved in making products available for dispatch and reuse (D) Signup and view all the answers

What type of cost is recorded after it is incurred and verified with actual operations?

Historical Costs (A) Signup and view all the answers

Which costing method involves calculating costs before they are incurred based on specifications?

Standard Costs (B) Signup and view all the answers

What is a primary objective of cost accounting in a competitive business environment?

Sustaining cost control (C) Signup and view all the answers

Which approach is a key aspect of decision-making based on cost accounting?

Choosing between multiple alternatives (C) Signup and view all the answers

How are estimated costs characterized in relation to standard costs?

Less accurate than standard costs (D) Signup and view all the answers

What does proper matching of costs with revenue aim to achieve in cost accounting?

Reflect actual income and expenses for a period (A) Signup and view all the answers

In cost analysis, what is the importance of control of costs?

To maintain competitive pricing and profitability (B) Signup and view all the answers

Which of the following is NOT a component of pre-determined costs?

Historical Costs (C) Signup and view all the answers

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Study Notes

Objectives of Cost Accounting

Identifies inefficiencies and waste across materials, time, expenses, and equipment use.
Provides timely data for profit and loss accounts and balance sheets, aiding in departmental and product analysis.
Explains reasons for profit or loss on financial statements to enhance understanding of financial performance.
Reveals production economies through assessment of methods, equipment, design, output, and layout.
Supplies actual cost figures for comparison with estimates, helping in future quotations and price-setting.
Compares standard costs with actual production costs to determine discrepancies.
Delivers comparative cost data across different periods and output volumes.
Maintains perpetual inventory for materials, facilitating interim financial reporting without extensive stocktaking.
Supports management in making short-term decisions regarding pricing, production priorities, and sourcing options.

Scope of Cost Accounting

Involves accurate matching of costs with revenues through regular statements reflecting cost and income linked to sales.
Assists in management decision-making, allowing evaluation of multiple alternatives based on potential outcomes.

Classification of Costs

By Time

Historical Costs: Determined after being incurred, these costs are objective and verifiable against actual operations.
Pre-determined Costs: Estimated before expenses are incurred, including:
- Estimated Costs: Rough projections prior to production, generally less accurate.
- Standard Costs: Established benchmarks for performance measurement.

By Accounting Relationship

Capital Expenditure: Assets that benefit future periods, recorded as such.
Revenue Expenditure: Costs that benefit only the current period, treated as expenses.

By Controllability

Controllable Costs: Costs influenced by their budget holders, allowing managers to manage resources effectively.
Non-Controllable Costs: Expenses beyond managerial control, unaffected by organizational decisions.

For Analytical and Decision Making

Opportunity Costs: Costs associated with choosing one alternative over another, reflecting lost potential benefits.
Sunk Costs: Costs already incurred that cannot be recovered, thus irrelevant to future decision-making.

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