Podcast
Questions and Answers
What type of cost varies directly with the volume of output?
What type of cost varies directly with the volume of output?
Sunk costs are relevant for decision making.
Sunk costs are relevant for decision making.
False
What is the term for costs that can be influenced by specific members of an organization?
What is the term for costs that can be influenced by specific members of an organization?
Controllable cost
The costs associated with warehousing and delivery vans fall under __________ costs.
The costs associated with warehousing and delivery vans fall under __________ costs.
Signup and view all the answers
Match the following costs with their definitions:
Match the following costs with their definitions:
Signup and view all the answers
What is the term used for the total costs attributed to manufacturing a product?
What is the term used for the total costs attributed to manufacturing a product?
Signup and view all the answers
Closing stock is subtracted when calculating the cost of production.
Closing stock is subtracted when calculating the cost of production.
Signup and view all the answers
What is calculated by adding factory overheads and opening work-in-progress to prime cost?
What is calculated by adding factory overheads and opening work-in-progress to prime cost?
Signup and view all the answers
The formula for calculating the cost of goods sold includes adding selling and distribution overheads to the cost of _____ .
The formula for calculating the cost of goods sold includes adding selling and distribution overheads to the cost of _____ .
Signup and view all the answers
Match the following components with their correct definitions:
Match the following components with their correct definitions:
Signup and view all the answers
What is the primary purpose of cost accounting?
What is the primary purpose of cost accounting?
Signup and view all the answers
Cost centers are used to group all the costs of a business together.
Cost centers are used to group all the costs of a business together.
Signup and view all the answers
What are the costs associated with producing one additional unit of output called?
What are the costs associated with producing one additional unit of output called?
Signup and view all the answers
Total Revenue is calculated by multiplying price by ______.
Total Revenue is calculated by multiplying price by ______.
Signup and view all the answers
Match the following cost concepts with their definitions:
Match the following cost concepts with their definitions:
Signup and view all the answers
Which of the following best describes variable costs?
Which of the following best describes variable costs?
Signup and view all the answers
A firm can only use one pricing strategy at a time.
A firm can only use one pricing strategy at a time.
Signup and view all the answers
What is the formula for calculating variance in standard costing?
What is the formula for calculating variance in standard costing?
Signup and view all the answers
Which of the following represents a direct material cost?
Which of the following represents a direct material cost?
Signup and view all the answers
Indirect labour costs are related directly to production operations.
Indirect labour costs are related directly to production operations.
Signup and view all the answers
The cost incurred for the remuneration of employees is categorized as _____ costs.
The cost incurred for the remuneration of employees is categorized as _____ costs.
Signup and view all the answers
Which of the following is considered an indirect expense?
Which of the following is considered an indirect expense?
Signup and view all the answers
Match the following types of costs with their definitions:
Match the following types of costs with their definitions:
Signup and view all the answers
Selling cost is associated with administrative tasks.
Selling cost is associated with administrative tasks.
Signup and view all the answers
Name one example of a direct labour cost.
Name one example of a direct labour cost.
Signup and view all the answers
Study Notes
Financial Management - Unit 1: Cost Accounting
- Cost accounting is a vital part of financial management.
- Costs are incurred in the process of producing a good or service to get it to the customer.
- Identifying where costs arise is crucial for business success.
- Examples of costs include direct materials, direct labor, factory overhead, selling expenses, and administrative costs.
Costs and Budgeting
- Costs and budgeting are interrelated aspects of cost accounting.
- Total revenue is a key element in assessing profit and cost efficiency.
- Cost centers and profit centers are important operational divisions in evaluating cost allocation and profitability.
- Break-even analysis helps identify the point where total revenues equal total costs, meaning there is no profit or loss.
Costing Techniques
- Absorption costing: All costs (direct and indirect) are absorbed into production costs.
- Marginal costing: Only variable costs are included in the product cost. Contribution margin is the excess of selling price over variable costs and contributes to covering fixed costs.
Cost Centers
- Cost centers are parts of a business where specific costs are attributed.
- Examples include a particular location, a section of the business, a capital asset, or a human resource department.
- These centers are useful for identifying where costs arise and how to manage them effectively.
Costing Methods
-
Full costing (also known as absorption costing) is a method used to allocate indirect costs to a range of products.
-
This involves allocating indirect costs based on the proportion of direct costs for each product.
-
Absorption costing allocates all incurred costs (direct, indirect, semi-variable, and selling costs) to specific cost centers. More accurate allocation.
-
Marginal costing considers only variable costs in the cost of a product. The difference between the selling price and variable cost contributes to covering fixed costs.
Standard Costing
- Standard costing involves establishing expected costs for production.
- Variances (differences between actual and standard costs) are analyzed to identify areas of inefficiency or efficiency.
- Monitoring these variances is crucial to improve business performance.
Total Revenue
- Total revenue is calculated by multiplying the price of a product by the quantity sold.
- Price elasticity of demand is important in evaluating price changes and their impact on total revenue.
- Marketing mix (7 Ps) strategies can influence the quantity sold.
Break-Even Analysis
- Break-even analysis helps determine the point where total costs equal total revenues (no profit or loss).
- Total costs and total revenue are key figures in break-even analysis.
- Margin of safety is the excess of expected sales or revenue over the break-even point.
Cost Concepts
- Cost: actual or notional expenditure incurred for a given thing.
- Costing: Techniques and processes of cost determination for products or services.
- Cost accounting: The process of recording and accounting for all cost elements.
Classification of Cost (According to Elements)
- Materials: Raw materials used to create products. Direct materials are easily identifiable with output; indirect materials are not.
- Labor: Direct labor is directly involved in production operations; indirect labor is involved in support functions.
- Expenses: Direct expenses are identifiable with specific products; indirect expenses are not.
Classification of Cost (According to Functions)
- Production cost: Cost associated with the entire production process (raw materials, labor, etc.).
- Administration cost: Cost involving management, policy-making, and controlling operations.
Classification of Cost (According to Nature)
- Fixed cost: Costs that remain constant regardless of production levels.
- Variable cost: Costs that change directly with production levels.
- Semi-variable cost: Costs that have both fixed and variable components.
Costing Concepts
- Product costing: Expenses of a product are analyzed under various heads. Product cost or cost sheet will be a statement showing the total cost.
Specimen of Cost Sheet (Format)
This section provides a format of a cost sheet showing the steps of calculating the cost of production and cost of goods sold. Includes opening stock, purchases, closing stock, direct wages, and expenses, factory overhead, opening/closing work-in-progress, administration overheads, opening/closing finished goods, and selling/distribution overheads.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
This quiz covers the essential concepts of cost accounting essential for financial management. It explores key elements such as cost types, budgeting, and various costing techniques. Understand the relationship between costs, profitability, and effective budgeting strategies.
