cost concepts, behaviour and terminology Flashcards
(23 cards)
how do we trace costs to cost objects?
direct costs + indirect costs = total costs
what are manufacturing costs?
direct materials + direct labour + manufacturing overhead
what is manufacturing overhead?
manufacturing costs that cannot be traced directly to specific units produced
what are manufacturing costs split up into?
indirect labour - wages paid to employees who are not directly involved in production work e.g. maintenance workers, cleaners and security guards
indirect materials - materials used to support the production process e.g. lubricants and cleaning supplies used in car assembly part
what are the classifications of costs
direct materials and direct labour - prime cost
direct labour and manufacturing overhead - conversion cost
what are manufacturing costs - summary?
associated with the production function in a factory
what are direct costs - summary?
directly traceable to the product being produced
what are indirect costs - summary?
common to all products - e.g. overheads
split into indirect materials and labour
indirect materials are those necessary for production yet do not become part of the finished product
indirect labour - all factory labour other than the workers who actually transform the raw materials into the finished product
what are non-manufacturing costs?
marketing and selling costs - costs necessary to get the order and deliver the product
administrative costs - all executive, organisational and clerical costs
what makes up the full cost?
direct materials + direct labour = prime cost
prime cost + production overhead = full production cost
full production cost + selling cost + general and administrative cost = full cost
what is a product cost?
those costs that are incurred to acquire, manufacture or construct a product
these costs usually consist of direct materials, direct labour and manufacturing overhead
what are period costs
cost relating to a time period rather than to the output of products and services
CIMA official terminology
how do product costs appear on documents?
inventory - statement of financial position
after sale;
cost of goods sold - income statement
how do all other costs appear on documents?
expense - income statement
what is related to the retailedr on the statement of financial position?
current assets;
in;
- cash
- debtors
- prepaid expenses
out;
- merchandise inventory
what is related to the manufacturer on the statement of financial position?
current assets;
in;
- cash
- debtors
- prepaid expenses
out;
inventory
- raw materials
- work in progress
- finished goods
what are total variable costs and cost per unit?
per unit;
remains the same over range of activity
total;
proportional to the level of activity in relevant range
what are total fixed costs and cost per unit?
per unit;
reduces as activity level increases
total;
remains the same within the relevant range of activity
what are the types of fixed costs?
committed and discretionary
what are committed costs?
long-term, cannot be reduced in the short-term
examples; depreciation and buildings and equipment
what are discretionary costs?
may be altered in the short-term by current managerial decisions
examples; advertising and research and developmetn
what are opportunity costs?
the potential benefit that is given up when one alternative is selected over another
what are sunk costs?
cannot be changed by any decision. They are not differential costs and should be ignored when making decisions
