Cost behaviour and Classification Flashcards
(19 cards)
Define Historical cost
The original cost paid for an asset at the time of acquisition.
Define Cost unit
A unit of product or service to which a costs are ascertained.
Define Cost centre
A production or service location, function, activity or item of equipment for which costs are accumulated.
Define cost object
Anything for which costs can be ascertained.
Define Direct costs
A cost that can be easily traced to the cost object under consideration. (Indirect costs are the opposite of this definition).
Define prime costs
The sum of all direct costs:
- Direct labour
- Direct materials
- Direct expenses
What can indirect costs also be referred to as.
Overheads
Difference between Manufacturing and non-manufacturing costs
Manufacturing costs are incurred in the production stage of manufacturing. Non-Manufacturing costs are required to support the overall activity of the company.
What are types of Non-Manufacturing costs
- Selling and Distribution costs
- Administrative costs
Define variable costs
These costs vary directly with the volume of activity or output. Assumed to be linear (directionally proportional)
Define fixed costs
These costs are unaffected by changes in volume or output.
Define stepped costs
Costs which are fixed within certain levels of activity.
Define semi-variable costs
These include a variable and fixed element for example a telephone bill.
Formula for Total cost
Total cost = Fixed cost + Variable cost
What are the methods of analysing semi-variable costs?
- High low method
- Scatter graph (line of best fit)
- Linear regression method
How to do high-low method?
- Establish the variable unit cost
- Calculate the total variable cost (using highest volume)
- Find the fixed element of the cost
- Estimate the cost
Formula for variable cost per unit
Movement in cost / Movement in units
What is the Scatter graph method?
- Takes into account all cost data.
- More accurate as it uses a line of best fit.
What is linear regression
y = ax + b
y = total cost
a = fixed cost
b = variable cost
x = output
The formula to find a and b will be provided in the exam.
