5 Questions
What is the major purpose of cost classification in business?
To estimate the profit and understand its relationship with costs and price
Why is costing considered necessary in the field of business?
To operate activities with utmost efficiency and at the lowest cost
What does cost accounting help to determine?
The costs of products through classification, recording, and allocation of expenditure
In the given example, what is the total cost of producing a mobile phone?
$100
What is the profit per device in the given example?
$50
Study Notes
Cost Classification in Business
- The major purpose of cost classification in business is to identify and segregate costs into different categories to facilitate informed decision-making.
Importance of Costing in Business
- Costing is considered necessary in the field of business because it helps to determine the profitability of a product, identify areas of cost reduction, and make informed pricing decisions.
Cost Accounting
- Cost accounting helps to determine the total cost of producing a product or service, which includes the calculation of fixed and variable costs, direct and indirect costs.
Example: Total Cost of Producing a Mobile Phone
- In the given example, the total cost of producing a mobile phone is the sum of all costs incurred, including material, labor, and overhead costs.
Example: Profit per Device
- The profit per device in the given example is the difference between the selling price and the total cost of producing a mobile phone, providing insight into the profitability of each device.
This quiz introduces the concept of cost accounting as a specialized branch of accounting, developed to address the limitations of financial accounts. It emphasizes the importance of operating business activities with efficiency and low cost.
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