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What does costing refer to?
What does costing refer to?
The method and process of determining costs. It involves classifying, recording, and allocating an organization's expenditure to determine the costs of products or services. Also it requires the presentation of suitably arranged data for management control and guidance.
What are the major objectives of costing?
What are the major objectives of costing?
The cost of resources used in exchange for goods or services is a valid definition of cost.
The cost of resources used in exchange for goods or services is a valid definition of cost.
True
Cost is only assessed in one aspect.
Cost is only assessed in one aspect.
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What is the most common method used to determine the cost per unit in a manufacturing organization?
What is the most common method used to determine the cost per unit in a manufacturing organization?
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What are the three primary categories for classifying costs based on management functions?
What are the three primary categories for classifying costs based on management functions?
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Which cost category refers to the costs incurred in the factory for converting raw materials to finished goods?
Which cost category refers to the costs incurred in the factory for converting raw materials to finished goods?
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What are the two types of costs based on the ease of traceability?
What are the two types of costs based on the ease of traceability?
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Which of the following is NOT a characteristic of direct costs?
Which of the following is NOT a characteristic of direct costs?
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Indirect costs are also known as common costs or joint costs.
Indirect costs are also known as common costs or joint costs.
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What is the key difference between product costs and period costs?
What is the key difference between product costs and period costs?
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Capital expenditures pertain to expenses that result in an asset's acquisition.
Capital expenditures pertain to expenses that result in an asset's acquisition.
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Revenue expenditures maintain assets in working conditions and are not intended to increase the revenue-earning capacity.
Revenue expenditures maintain assets in working conditions and are not intended to increase the revenue-earning capacity.
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Give three examples of overhead costs.
Give three examples of overhead costs.
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What is a standard cost?
What is a standard cost?
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Explain the concept of opportunity cost.
Explain the concept of opportunity cost.
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What are sunk costs?
What are sunk costs?
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Which of the following is NOT an example of committed costs?
Which of the following is NOT an example of committed costs?
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Define discretionary costs.
Define discretionary costs.
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Controllable costs can be influenced or controlled by a supervisor or manager for a given period.
Controllable costs can be influenced or controlled by a supervisor or manager for a given period.
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Define the relevant range.
Define the relevant range.
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Variable costs change in total in direct proportion to changes in production volume.
Variable costs change in total in direct proportion to changes in production volume.
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Step costs are constant for a given output level and then decrease by a fixed amount at a higher output level.
Step costs are constant for a given output level and then decrease by a fixed amount at a higher output level.
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The high-low method is used to separate mixed costs into their fixed and variable components.
The high-low method is used to separate mixed costs into their fixed and variable components.
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What are the three primary inventory accounts most companies maintain?
What are the three primary inventory accounts most companies maintain?
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Which inventory system requires maintaining records for each type of raw materials, reflecting the inflow, outflow, and balance of raw materials in quantity and peso amount?
Which inventory system requires maintaining records for each type of raw materials, reflecting the inflow, outflow, and balance of raw materials in quantity and peso amount?
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The periodic inventory system requires physical counting of raw materials to be facilitated periodically.
The periodic inventory system requires physical counting of raw materials to be facilitated periodically.
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What are the four primary steps in the flow of manufacturing costs?
What are the four primary steps in the flow of manufacturing costs?
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What is the purpose of the actual costing system?
What is the purpose of the actual costing system?
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In the normal costing system, a predetermined overhead rate is used to allocate manufacturing overhead costs to jobs.
In the normal costing system, a predetermined overhead rate is used to allocate manufacturing overhead costs to jobs.
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What is the formula for computing the predetermined overhead rate?
What is the formula for computing the predetermined overhead rate?
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Study Notes
Costing Overview
- Costing is a method of determining the costs of products or services, involving classifying, recording, and allocating expenditure. It's essential for management control and guidance.
Costing Objectives
- Determine the cost of each operation to control wages
- Establish product selling prices and company pricing policies
- Provide information for purchasing decisions
- Assist management in making decisions, minimizing waste, and reducing manufacturing costs
Cost Concepts
- Cost is the resources exchanged for goods or services.
- Cost is the expenditure associated with a specific object or activity.
- Cost is the initial monetary value to achieve a particular objective.
Cost Nature
- Cost analysis depends on the business type. Manufacturing concerns focus on per-unit product costs, while service businesses like utilities and transportation focus on costs per service rendered.
- Cost analysis varies by purpose. For pricing, all production, administrative, and selling costs are considered. Inventory valuation only includes production costs.
- Different conditions affect costs. Work-in-progress is valued at factory cost, while finished goods are valued at their production cost.
- Cost is a broad term that includes various expenditure types (fixed, variable, sunk). The cost type chosen depends on its context.
Cost Classification
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Categorization of costs by managerial function:
- Manufacturing costs involve converting raw materials into finished products (raw materials, direct labor, factory overhead).
- Non-manufacturing costs are not directly related to transforming materials into finished goods (selling expenses, administrative expenses).
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Classification by traceability:
- Direct costs are traceable to specific cost objects (materials, direct labor, some operating expenses).
- Indirect costs are not directly traceable to cost objects (factory overhead, operating expenses for multiple products).
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Classification by timing of charges to revenue:
- Product costs are part of inventory and are charged against revenue (direct materials, direct labor, factory overhead).
- Period costs are immediately charged against revenue (selling and administrative expenses).
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Classification by accounting period:
- Capital expenditure pertains to acquiring or improving assets for increased revenue-generating capacity (land, building, machinery).
- Revenue expenditure maintains assets in working order and benefits the current accounting period (maintaining equipment, supplies).
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Classification by relevance to decision-making:
- Overhead costs encompass ongoing business expenses not related to direct materials or labor (rent, utilities, insurance).
- Standard costs are pre-determined costs based on experience/budgets/industry standards.
- Opportunity costs represent the forgone benefits from choosing an alternative course of action (lost rent from a building used for production).
- Sunk costs are historical costs not relevant to current decisions (previous purchase of equipment).
- Committed costs are fixed, structural costs (property taxes, management salaries, facility rent).
- Discretionary costs are expenditures based on management decisions (research and development, charitable donations, advertising).
- Controllable costs are those that supervisors/managers can influence (office supplies, overtime).
Cost Behavior
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Fixed costs remain constant regardless of output volume (rent, insurance, salaries).
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Variable costs change proportionally with output volume (materials, direct labor, variable manufacturing costs).
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Mixed costs contain both fixed and variable components (utilities).
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Step costs remain constant within certain output ranges, increasing by a fixed amount when the range changes (supervisor salaries).
Separating Mixed Costs
- High-low method is used to identify variable and fixed components of mixed costs, useful in budgeting.
Inventory Accounting
- Raw Materials Inventory tracks available raw materials.
- Work-in-Process Inventory represents costs of partially completed goods.
- Finished Goods Inventory stores the costs of completed, ready-for-sale products.
- Perpetual Inventory System maintains detailed records of inventory movements (stock cards)
- Periodic Inventory System counts inventory physically to determine quantities on hand.
Costing Methods
- Actual Costing System charges all production costs (direct materials, direct labor, manufacturing overhead) to the specific jobs or products. It uses actual figures for all costs.
- Normal Costing System applies predetermined overhead rates to estimate manufacturing overhead costs. It uses actual amounts for direct materials and direct labor, and a predetermined rate for manufacturing overhead.
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Description
This quiz covers the fundamental principles of costing, including its objectives and various cost concepts. It explores how costs are determined and analyzed in both manufacturing and service sectors to aid in management decision-making.
