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Questions and Answers
Which of the following best describes 'costing' as a technique, according to the text?
Which of the following best describes 'costing' as a technique, according to the text?
- The principles and rules used to ascertain cost of products. (correct)
- A detailed breakdown of all expenses incurred by a business.
- A method for determining the selling price of a product or service.
- A procedure for reducing business expenses to increase profits.
A manufacturing company is evaluating whether to invest in new machinery to automate part of its production process. Which objective of costing is MOST relevant to this decision?
A manufacturing company is evaluating whether to invest in new machinery to automate part of its production process. Which objective of costing is MOST relevant to this decision?
- Ascertainment of cost, to determine the initial investment amount.
- Cost control, to project potential savings in labor costs. (correct)
- Ascertainment of cost, to account for existing expenses.
- Cost control, to minimize production costs.
Which of the following scenarios best illustrates the application of cost control principles?
Which of the following scenarios best illustrates the application of cost control principles?
- A company calculates the cost of goods sold for a specific product line.
- A company allocates overhead costs to its various production departments.
- A company analyzes its financial statements to determine its net income for the year.
- A company researches and selects the most cost-effective supplier for its raw materials. (correct)
A company's actual production costs are significantly higher than the budgeted costs. According to the text, what is the MOST appropriate initial action for management to take?
A company's actual production costs are significantly higher than the budgeted costs. According to the text, what is the MOST appropriate initial action for management to take?
Which of the following project types would MOST likely require capital budgeting?
Which of the following project types would MOST likely require capital budgeting?
A factory's vehicle rental costs are categorized as indirect costs. Which characteristic BEST explains this classification?
A factory's vehicle rental costs are categorized as indirect costs. Which characteristic BEST explains this classification?
Which of the following costs would be considered a direct cost for a furniture manufacturer?
Which of the following costs would be considered a direct cost for a furniture manufacturer?
A company is determining its overhead costs. Which of the following would typically be included?
A company is determining its overhead costs. Which of the following would typically be included?
A retail store is deciding whether to open a new branch in a different city. Which aspect of costing is MOST crucial in making this decision?
A retail store is deciding whether to open a new branch in a different city. Which aspect of costing is MOST crucial in making this decision?
Which of the following describes the relationship between cost control and profitability?
Which of the following describes the relationship between cost control and profitability?
A company leases a warehouse with a fixed monthly payment. How would this cost be classified, and what is its key characteristic?
A company leases a warehouse with a fixed monthly payment. How would this cost be classified, and what is its key characteristic?
A bakery's cost of flour increases as the number of cakes produced rises. Which type of cost does flour BEST represent?
A bakery's cost of flour increases as the number of cakes produced rises. Which type of cost does flour BEST represent?
Which of the following costs is MOST likely to be classified as an operating cost for a manufacturing plant?
Which of the following costs is MOST likely to be classified as an operating cost for a manufacturing plant?
An investor chooses to invest in Stock A, foregoing the potential returns from Stock B. What economic concept does this scenario BEST illustrate?
An investor chooses to invest in Stock A, foregoing the potential returns from Stock B. What economic concept does this scenario BEST illustrate?
A toy manufacturer is considering increasing production. What does incremental represent in this context?
A toy manufacturer is considering increasing production. What does incremental represent in this context?
How do fixed costs and variable costs respond differently to a decrease in production volume?
How do fixed costs and variable costs respond differently to a decrease in production volume?
A company is considering increasing production. Which of the following costs would be MOST relevant in calculating the incremental cost of this decision?
A company is considering increasing production. Which of the following costs would be MOST relevant in calculating the incremental cost of this decision?
How do fixed and variable costs relate to the calculation of incremental cost?
How do fixed and variable costs relate to the calculation of incremental cost?
A small business is trying to determine the incremental cost of producing one additional handcrafted table. Which calculation accurately reflects this cost?
A small business is trying to determine the incremental cost of producing one additional handcrafted table. Which calculation accurately reflects this cost?
Which of the following scenarios BEST exemplifies an indirect cost?
Which of the following scenarios BEST exemplifies an indirect cost?
How do direct costs differ from indirect costs in project management?
How do direct costs differ from indirect costs in project management?
A company is evaluating the costs associated with a new project. They have identified expenses for project-specific training, equipment rental, and a portion of the company's insurance. How should these expenses be classified?
A company is evaluating the costs associated with a new project. They have identified expenses for project-specific training, equipment rental, and a portion of the company's insurance. How should these expenses be classified?
Which of the following is the BEST example of a variable cost for a manufacturing company?
Which of the following is the BEST example of a variable cost for a manufacturing company?
A consulting firm's expenses include employee salaries, office rent, software licenses, and travel costs. If the firm experiences a decrease in the number of projects, which cost is MOST likely to decrease proportionally?
A consulting firm's expenses include employee salaries, office rent, software licenses, and travel costs. If the firm experiences a decrease in the number of projects, which cost is MOST likely to decrease proportionally?
Flashcards
Costing
Costing
The technique and process of finding out how much something costs.
Ascertainment of Cost
Ascertainment of Cost
The main goal is to figure out the cost of each product or service.
Cost Control
Cost Control
Keeping an eye on expenses and cutting them down to boost profits.
Budgeting Process in Cost control
Budgeting Process in Cost control
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Capital Budgeting
Capital Budgeting
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Direct Costs
Direct Costs
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Indirect Costs
Indirect Costs
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Fixed Costs
Fixed Costs
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Incremental Cost
Incremental Cost
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Variable Costs
Variable Costs
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Fixed Costs Defined
Fixed Costs Defined
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Direct Costs Defined
Direct Costs Defined
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Indirect Costs Defined.
Indirect Costs Defined.
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Overhead Costs
Overhead Costs
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Operating Costs
Operating Costs
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Opportunity Cost
Opportunity Cost
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Study Notes
- Costing is a technique and process of finding out how much something costs.
- Costing, as a technique, includes principles and rules to figure out the cost.
- As a process, costing refers to a procedure to work out the costs.
Factors Affecting Costing
- The technique and process to use depends on the industry, the product, and the production method.
- Costing objectives are divided into three areas.
Ascertainment of Cost
- Finding out the cost is the priority in costing
Cost Control
- Cost control involves spotting and cutting business expenses to make more profit, starting with the budgeting process.
- Companies compare their actual financial results with what they expected in the budget.
- If actual costs are more than planned, management can take action.
Capital Budgeting
- Capital budgeting refers to evaluating major projects or investments.
- Examples include building a new plant or making a big investment in a venture, requiring evaluation before approval.
- Companies can get bids from different vendors for the same product or service to lower costs.
- Cost control is key to maintaining and increasing profitability.
Types of Costs
- Direct Costs
- Indirect Costs
- Fixed Costs
- Variable Costs
- Operating Costs
- Opportunity Cost
- Incremental Cost, or Marginal Cost
Direct Costs
- These costs are essential and must be paid immediately.
- They are classified in production or units of output, like raw materials and labor.
Indirect Costs
- These costs affect production activities as a whole and not individual units, such as factory overhead.
- Examples include vehicle rental, building rentals, and insurance.
- Overhead costs are additional expenses not directly related to the main business process such as managing raw materials to become finished products for sale.
- Overhead costs include tax collections, employee insurance, rental rates, stationery equipment, and security guard salaries.
Fixed Costs
- These costs remain stable and don't change with production levels, although conditions over long period of time can affect the cost
- Fixed costs are always there, even with no or many activities
- Examples include property taxes, most payroll costs, and stat insurance.
Variable Costs
- Variable costs change with the level of activity such as the costs of materials, advertising etc
- If activity increases, variable costs also increase and decrease when activity lowers
Operating Costs
- These are all costs for direct operation or production such as:
- Employee salaries and benefits
- Property taxes
- Licensing fees
- Advertising and marketing fees
Opportunity Cost
- This is what an investor misses out on when they choose one investment over another
- The value is based on what you lose when choosing between options
- For investors, it’s the immediate and future losses or gains from an investment choice.
Incremental Cost
- Incremental cost is the total cost for each additional product unit like raw materials,
- Understanding this helps companies improve production and profitability.
- The cost between making products in total, verses an extra unit is marginal cost.
- Two types of costs to consider when calculating incremental cost are.
- Fixed Costs are costs unaffected by changes in production levels such as rent, insurance, property taxes and machinery.
- Variable Costs are costs that change based on how much a company produces.
Calculating Incremental Cost
- The formula for incremental cost per unit is: (Variable Cost) / (Units Produced)
Key Cost Differences
- Fixed Costs are usually for assets, buildings, and rent that do not change monthly
- Direct Cost are paid from the project budget
- Training staff, sending them to another location, and purchasing equipment for use within the project are examples
- Indirect Costs can't be tied to a specific project and is split across projects using approved accounting procedure.
- Examples are coffee for staff, computers, security costs, phone charges, insurance, and welfare
- Variable Costs change monthly, like staff salaries, and labor costs.
- Variable costs can cover earth movers or electricians.
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Description
Costing is a method used to determine the expense of a product or service. Factors such as industry, product type, and production methods influence the costing approach. Costing aims to ascertain costs, control expenses, and aid in capital budgeting.
