Chapter 2: Costs & Cost Behaviour

Question 1

What is a cost centre?

Answer 1

A cost centre is a location where all costs relating to certain activities and functions are stored.

Question 2

What are the 4 key areas of cost centres?

Answer 2

• Function
• Activity
• Service Location
• Equipment

Question 3

What are the 3 cost element categories?

Answer 3

• Materials
• Labour
• Expenses

Question 4

How is the prime cost calculated?

Answer 4

Direct Material + Direct labour + Direct Expenses = Prime Cost

Question 5

How is production overheads calculated?

Answer 5

Indirect Material + Indirect labour + Indirect Expenses = Production overheads

Question 6

What is cost behaviour in the perspective of ma accountant?

Answer 6

How do costs change depending on the level of production

Question 7

For digital products when are costs incurred?

Answer 7

Majority of the costs are incurred by the time the product is first released.

Question 8

How should a digital product be costed?

Answer 8

By dividing the overhead costs over the expected life of the product