ACCT2012 Lecture 2

Question 1

Cost Behaviour

Answer 1

the variation in costs relative to the variation in an organisation’s activities.

Question 2

Cost can be categorized by….

Answer 2

• the way they’re used in decision making

* the way they change activity/volume levels change

Question 3

Variable Costs

Answer 3

costs that increase in proportion to the increase in activity/volume levels

Question 4

Fixed Costs

Answer 4

costs that do not change as activity/volume levels change

Question 5

Relevant Range

Answer 5

span of activity levels for which the cost behaviour patterns hold

Question 6

Marginal cost / incremental cost

Answer 6

cost of producing 1 extra unit

Question 7

Cost Function

Answer 7

TC = TFC + (VC x Q)

Question 8

Cost Driver

Answer 8

• input / activity that causes change in total cost for a cost object
• provides a measure of activity that explains the cost object’s use of the indirect cost.

Criteria
• cause and effect
• benefits received
• fairness or equity
• ability to bear
• behavioural factors.

Question 9

Direct Costs

Answer 9

Have a cause-and-effect relationship with cost object

*cost vs. benefit analysis will assess the cost of tracing costs to cost objects vs. benefits of having more detailed info

Question 10

Indirect Costs

Answer 10

for the benefit of many cost objects and cannot be easily related to any specific cost object

Whether a cost is classified as direct or indirect depends on the:
• specific cost object which is being analysed
• cost/benefit assessment of tracing the cost.

Question 11

Cost Allocation

Answer 11

Allocation of indirect costs to specific cost objects

Question 12

Cost Pool

Answer 12

grouping of similar individual costs on a departmental basis.