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Questions and Answers
What is a controllable cost?
What is a controllable cost?
Administrative costs are an example of selling and distribution expenses.
Administrative costs are an example of selling and distribution expenses.
False
What is an example of a normal or unavoidable cost?
What is an example of a normal or unavoidable cost?
Cost of normal spoilage of material and the cost of normal idle time
Packaging costs are considered ______________________ costs where they relate to primary packing.
Packaging costs are considered ______________________ costs where they relate to primary packing.
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Match the following cost classification types with their definitions:
Match the following cost classification types with their definitions:
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What is an example of a functional cost?
What is an example of a functional cost?
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What is a sunk cost?
What is a sunk cost?
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Historical cost is a type of cost that is estimated before it is incurred.
Historical cost is a type of cost that is estimated before it is incurred.
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What is the purpose of cost centers?
What is the purpose of cost centers?
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Cost reduction implies a temporary reduction in the unit cost of goods manufactured or services
Cost reduction implies a temporary reduction in the unit cost of goods manufactured or services
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What is a cost unit?
What is a cost unit?
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A cost object is any activity for which a separate measurement of costs is desired, such as ________________________
A cost object is any activity for which a separate measurement of costs is desired, such as ________________________
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Match the following cost-related terms with their definitions:
Match the following cost-related terms with their definitions:
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What is an example of a cost center?
What is an example of a cost center?
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Cost units are used to allocate costs to cost centers
Cost units are used to allocate costs to cost centers
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In a hospital, a cost unit would be a ________________________
In a hospital, a cost unit would be a ________________________
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What is the definition of a cost unit according to CIMA, London?
What is the definition of a cost unit according to CIMA, London?
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Cost centres are primarily of three types: personal, impersonal, and functional.
Cost centres are primarily of three types: personal, impersonal, and functional.
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What is the formula to calculate cost?
What is the formula to calculate cost?
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A ______________ is a location, person, or item of equipment (or group of these) for which costs may be ascertained and used for the purpose of control.
A ______________ is a location, person, or item of equipment (or group of these) for which costs may be ascertained and used for the purpose of control.
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Match the following cost centres with their descriptions:
Match the following cost centres with their descriptions:
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What is the term for the amount of expenditure (actual or notional) incurred on, or attributable to, a specified thing or activity?
What is the term for the amount of expenditure (actual or notional) incurred on, or attributable to, a specified thing or activity?
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Cost and expense are the same thing.
Cost and expense are the same thing.
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Give an example of a cost unit.
Give an example of a cost unit.
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Study Notes
Cost Classification and Cost Centers
- Cost centers are collecting places for costs before they are further analyzed into cost units.
- Examples of cost centers include:
- A department
- A machine or group of machines
- A project
Cost Units
- A cost unit is a unit of product or service to which costs can be related.
- Examples of cost units include:
- A bottle of soft drink
- A patient in a hospital
Cost Object
- A cost object is any activity for which a separate measurement of costs is desired.
- Examples of cost objects include:
- The cost of a product
- The cost of operating a department
- The cost of a service
Cost Control, Cost Reduction, and Cost Management
- Cost control involves comparative analysis of actual costs with appropriate standards or budgets to facilitate performance evaluation and formulation of corrective measures.
- Cost reduction involves bringing costs down through real and permanent reduction in the unit cost of goods manufactured or services.
- Cost management includes both cost control and cost reduction, with the objective of increasing productivity of resources and factors of production to enhance profitability.
Cost Classification
- Cost classification based on controllability:
- Controllable cost: a cost which can be influenced by the action of a specified member of an undertaking.
- Uncontrollable cost: a cost which cannot be influenced by the action of a specified member of an undertaking.
- Cost classification based on normality:
- Normal or unavoidable costs: costs of normal spoilage of material and normal idle time.
- Abnormal or avoidable costs: costs of spoilage of material above the normal limit.
- Cost classification based on function:
- Production cost: costs incurred in the sequence of operations beginning with the supply of raw materials and ending with the completion of the product.
- Administration cost: costs of managing an organization, including salaries of managers and employees, and rent expenses of office building.
- Selling and Distribution expenses: costs incurred in selling the products to customers and distributing them.
Cost Classification (continued)
- Cost classification based on time:
- Historical cost: pre-determined cost.
- Cost classification based on relevance to decision making and control:
- Marginal cost
- Sunk cost
- Opportunity cost
- Standard cost
- Shut down cost
- Replacement cost
- Abandonment cost
Cost Definition and Cost Unit
- A cost is the amount of expenditure (actual or notional) incurred on, or attributable to, a specified thing or activity.
- Cost = Quantity x Price
- A cost unit is a unit of product or service in relation to which costs are ascertained.
Cost Centre
- A cost centre is a location, person, or item of equipment (or group of these) for which costs may be ascertained and used for the purpose of control.
- Examples of cost centres include:
- Personal cost centre: a person or a group of persons.
- Impersonal cost centre: a location or an item of equipment or group of these.
- Cost centres can be classified into:
- Production cost centre: where actual production work takes place.
- Service cost centre: which renders services to production cost centres.
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Description
This quiz covers the concepts of cost classification, total cost calculation, and cost centers. Learn about the process of tracing costs to cost centers and how they are further analyzed into cost units.
