Costing - 25%

Question 1

What is a cost centre?

Answer 1

• a collecting place for costs before they are analysed further

Question 2

What is a Cost Unit

Answer 2

• A unit of product or service to which costs can be related

Question 3

What is a cost object ?

Answer 3

• anything a user of accounting information wants to know what cost of

Question 4

What is an Economic Cost?

Answer 4

• based on the cost of the alternative chosen and the benefit that the best alternative would have provided if chosen

Question 5

What is Economic Value ?

Answer 5

The most someone is willing to give up in £/$ to obtain a product or service

Question 6

Give three examples if a cost center

Answer 6

Department
Machine
Project

Question 7

Give two examples of a cost unit

Answer 7

• number of patients in a hospital or how many days a patient has stayed at the hospital
• how many passengers are on the transport or how many km a transport has been done.

Question 8

Give 3 examples of a cost object

Answer 8

• product
• service
• sales territory

Question 9

What are the 3 cost classifications by nature ?

Answer 9

Material
Labour
Expenses

Question 10

What are the 3 cost classifications by function

Answer 10

• production cost
• administration cost
• selling and distribution costs

Question 11

What are the 2 cost classifications by behaviour

Answer 11

• fixed cots
• variable costs

Question 12

Explain fixed costs

Answer 12

• these costs are not effected by the change in activity level

Question 13

Explain variable costs

Answer 13

These costs ARE effected by the levels of activity

Question 14

What’s is a direct cost?

Answer 14

• A cost that can be traced in FULL to the product, service or department that is being costed

Question 15

What in an indirect cost ?

Answer 15

This us a cost that can NOT be traced directly to the product service or department

Question 16

What is the prime cost formula

Answer 16

Direct Material + Direct labour + Direct expenses = Prime Cost

Question 17

What is the formula for overheads ?

Answer 17

Indirect Material + indirect labour + indirect expenses = overheads

Question 18

What is the formula for total costs ?

Answer 18

Direct material + direct labour + direct expenses + indirect material + indirect labour + indirect expenses = total costs

Question 19

What is an avoidable cost ?

Answer 19

• a cost which would not be incurred if the activity to which it related did not exist

Question 20

What is an opportunity cost?

Answer 20

The benefit that would have been earned but which has been given up by choosing one option instead of another

Question 21

What is a controllable cost ?

Answer 21

An item of expenditure which can be directly influenced by a given manager within a given time span

Question 22

Differential Cost

Answer 22

The relevant difference in the cost of alternatives

Question 23

What are the 5 relevant costs

Answer 23

• Avoidable costs
• opportunity cost
• controllable cost
• differential cost
• Relevant cost of labour

Question 24

Relevant cost of labour

Answer 24

The direct labour costs PLUS the contribution loss by diverting labour to make another product

Question 25

What are the 2 non- relevant costs ?

Answer 25

• sunk cost
• fixed cost

Question 26

What is a sunk cost

Answer 26

• this is a past ( historical) cost which is not directly relevant in decision making

Question 27

What is a fixed cost?

Answer 27

Unless given an indication to the contrary assume fixed costs are irrelevant costs and variable costs are relevant

Question 28

Relevant costs of materials - not owed

Answer 28

• current replacement cost

Question 29

Relevant cost of Materials - owned

Answer 29

Will be replaced but may not be replaced if it is higher than current resale value and value if put to an alternative use

Question 30

What is a responsibility center?

Answer 30

This us a department or organisational function whose performance us the direct responsibility of a specific manager

Question 31

What is a profit centre?

Answer 31

-A profit center is similar to a cost center
-They are responsible for costs and revenues

Question 32

What is an investment centre?

Answer 32

• profit centre with additional responsibilities
• responsible for costs and revenues
• responsible for capital investments and finance i g

Question 33

What is a controllable cost ?

Answer 33

This is a cost which can be influenced by management decisions and actions

Question 34

What is an uncontrollable cost ?

Answer 34

This is any cost that cannot be affected by management within a given Time span

Question 35

What are revenue center management responsible for ?

Answer 35

Revenue only

Question 36

What are cost Center managers responsible for ?

Answer 36

Cost only