24 Questions
Which of the following costs can be traced to a specific business activity?
Direct materials cost
What type of cost is the cost of flour in a bakery?
Variable cost
Which of the following is an example of an indirect cost?
Telephone bill
What type of cost is the cost of electricity in a factory?
Semi-variable cost
Which of the following is a direct cost?
Direct labor cost
What type of cost is the cost of utensils in a restaurant?
Fixed cost
Which of the following costs can be classified as both direct and indirect?
Labor cost
What type of cost is the cost of sugar in a bakery?
Variable cost
What is the primary function of controlling in management?
To ensure consistent performance with predetermined objectives
What is the goal of decision-making in management?
To maximize returns or profit of the organization
Which costing method is used to allocate overhead costs?
Activity-Based Costing
What is the purpose of inventory management?
To manage inventory levels and minimize costs
What is the definition of cost in the context of business accounting?
The utilization of assets' resources in order to obtain another asset
Which of the following is a type of inventory management technique?
EOQ
What is the difference between direct costs and indirect costs?
Direct costs are related to a specific product or department, while indirect costs are not
What is included in prime cost?
All the direct costs, including direct material cost and direct labor cost
What are conversion costs?
Costs used to convert raw materials into finished goods
Which of the following is a type of cost that varies with the level of production?
Variable Costs
What is the purpose of standard costing?
To establish a standard cost for a product or service
What is the characteristic of fixed costs?
They remain fixed or constant although there are changes in output
What is the characteristic of variable costs?
They vary according to variation in unit of output
What is the characteristic of semi-variable costs?
They are a combination of variable costs and fixed costs
What is the difference between direct costs and indirect costs?
Direct costs are costs of raw materials and direct labor, while indirect costs are costs of other than raw material and direct labor
What is an example of indirect costs?
Overhead costs
Study Notes
Cost Terminology
- Cost is the utilization of assets' resources to obtain another asset (usually cash).
- Prime Cost consists of all direct costs, including direct material cost and direct labor cost.
- Conversion Costs are used to convert raw materials into finished goods.
- Overhead Costs include all costs other than raw material and direct labor that are used to determine the value of the product and inventories.
Cost Classification According to Behaviour
- Fixed Costs remain constant or unchanged despite changes in output within a given relevant range.
- Variable Costs vary according to the variation in unit of output.
- Semi-Variable Costs are a combination of variable costs and fixed costs.
Cost Classification According to Tracing & Allocation
- Direct Costs can be traced to a business activity, such as direct materials cost or direct labor cost.
- Examples of Direct Costs include flour, water, sugar, eggs, and utensils (materials), and chef, cashier, and other workers (labor).
- Indirect Costs, also known as Overheads, include expenses such as halal certification, rent of shop, telephone, electricity, water bills, and other cost items that do not fall under material and labor categories.
Accounting for Materials
- No specific notes, as this section appears to be an introduction to a new chapter.
Functions of Management Accounting
- Controlling involves ensuring that divisional, departmental, sectional, and individual performances are consistent with predetermined objectives and goals.
- Decision-making involves allocating resources effectively to maximize returns or profit.
Overview of Cost Management
- Cost Management involves Material Costs, Labour Costs, and Overhead Costs.
- Cost and Valuation methods include LIFO, FIFO, Weighted Average, and other methods.
- Inventory Management techniques include EOQ, Re-Order Point, Safety Stock, and JIT.
- Cost Allocation methods include the Traditional Method, Activity-Based Costing, and different costing methods such as Actual, Normal, and Standard Costing.
Understand the concepts of cost and prime cost in business accounting. Learn how to utilize assets to obtain another asset, usually cash. Identify the components of prime cost, including direct material cost and direct labor cost.
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