Cost Terms, Concepts, and Classification

Question 1

What is inventory valuation used in

Answer 1

Inventory valuation is used in:
- Internal reports
- External financial reports

Question 2

What does decision making help with

Answer 2

Decision-making helps with choosing between alternatives

Question 3

What costs does decision making require

Answer 3

Decision making requires relevant costs

Question 4

What are examples of planning

Answer 4

Planning: e.g., preparing budgets

Question 5

What does control involve

Answer 5

Control involves comparing actual costs vs budgets

Question 6

What are examples of performance

Answer 6

Examples of performance are: e.g., using variance analysis or KPIs to evaluate efficiency

Question 7

What is cost

Answer 7

Cost = Monetary measure of resources sacrificed for an objective

Question 8

What are cost objects

Answer 8

Cost object: Anything you want to assign a cost to

Question 9

What is cost unit

Answer 9

Cost unit is the smallest measurable output

Question 10

What is cost centre

Answer 10

Cost centre is where costs are collected

Question 11

What are direct costs like

Answer 11

Direct costs are traceable directly to a cost object

Question 12

What are some examples of direct costs

Answer 12

Examples of direct costs are: raw materials for a cake, mechanics fixing a specific car

Question 13

What are indirect costs like

Answer 13

Indirect costs are not directly traceable - shared across cost objects

Question 14

What are examples of indirect costs

Answer 14

Examples of indirect costs are: factory rent, supervisor salaries

Question 15

Prime cost =

Answer 15

Prime cost = direct materials + direct labour + direct expenses

Question 16

Overheads =

Answer 16

Overheads = indirect costs

Question 17

How are production/manufacturing costs incurred

Answer 17

Production/manufacturing costs are incurred in transforming raw materials into finished goods

Question 18

How are non-manufacturing costs incurred

Answer 18

Non-manufacturing costs are incurred outside production

Question 19

Where do product costs go

Answer 19

Product costs go into inventory valuation

Question 20

Where are period costs charged

Answer 20

Period costs are charged to the income statement in the period incurred

Question 21

Do fixed costs change

Answer 21

Fixed costs do not change with output

Question 22

What happens to per unit costs as output increases with fixed cost

Answer 22

Per unit cost falls as output increases with fixed costs

Question 23

What’s an example of a fixed cost

Answer 23

Rent is a fixed cost

Question 24

How do variable costs vary

Answer 24

Variable costs vary in total with activity level

Question 25

What is per unit cost like with variable costs

Answer 25

With variable costs per unit cost stays constant

Question 26

What are examples of variable costs

Answer 26

Examples of variable costs are: Cost of raw materials per unit

Question 27

What are semi-variable costs like

Answer 27

Semi-variable costs have both fixed and variable components

Question 28

What are examples of semi-variable costs

Answer 28

Examples of semi-variable costs are: basic wage (fixed) + overtime (variable)

Question 29

What are stepped fixed costs

Answer 29

Stepped fixed costs stay fixed within a range, but increase in steps when activity exceeds thresholds

Question 30

What's an example of stepped fixed costs

Answer 30

Example of stepped fixed costs are: hiring an extra supervisor after 50 workers

Question 31

What costs are relevant

Answer 31

Only future and differential costs are relevant

Question 32

What costs are irrelevant

Answer 32

Sunk or uncharged costs are irrelevant

Question 33

What are avoidable costs like

Answer 33

Avoidable costs can be eliminated

Question 34

What do avoidable costs overlap with

Answer 34

Avoidable costs often overlaps with relevant costs

Question 35

What are sunk costs

Answer 35

Sunk costs are costs that can't be recovered

Question 36

Whats an example of sunk costs

Answer 36

Example of sunk costs are: past R&D spending on a product under review

Question 37

What is opportunity cost

Answer 37

Opportunity cost is the value of the next best alternative foregone

Question 38

What is marginal cost

Answer 38

Marginal cost = cost of one extra unit

Question 39

What are incremental cost

Answer 39

Incremental costs are cost of a batch of extra units or new operation