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What is the major purpose of cost classification in business?
What is the major purpose of cost classification in business?
- To analyze the economic conditions of the country
- To estimate the profit and understand its relationship with costs and price (correct)
- To determine the market demand for the product
- To calculate the total expenditure of the business
Why is costing considered necessary in the field of business?
Why is costing considered necessary in the field of business?
- To maximize revenue through aggressive marketing
- To ensure equal distribution of profits among shareholders
- To operate activities with utmost efficiency and at the lowest cost (correct)
- To comply with legal regulations
What does cost accounting help to determine?
What does cost accounting help to determine?
- The market share of the company's products
- The customer satisfaction levels
- The advertising and promotional expenses
- The costs of products through classification, recording, and allocation of expenditure (correct)
In the given example, what is the total cost of producing a mobile phone?
In the given example, what is the total cost of producing a mobile phone?
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What is the profit per device in the given example?
What is the profit per device in the given example?
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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.
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Description
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.
