Week 1 - Cost Terminology Flashcards
(25 cards)
What is a cost object?
Any item where cost measurement is required, such as a product or a customer.
What is a cost driver?
Any factor that causes a change in the cost of an activity.
What are capitalised costs?
Costs recognised as assets on the Statement of Financial Position (SOFP).
What are expensed costs?
Costs recognised on a periodic basis as expenses in the Income Statement (IS).
What are product costs?
Total cost of purchasing or producing goods or delivering services to customers.
What are period costs?
All other selling and administrative costs not included in product costs, such as advertising and salaries.
What does Cost of Sales include for manufacturing businesses?
Cost of materials used, cost of labour directly involved in production, and manufacturing overhead.
What inventory is held by manufacturing businesses?
Materials held for use, finished goods held for sale, and unfinished goods (work in progress).
What do trading businesses include in their financial statements?
Cost of sales in the Income Statement (IS) and inventory held in the Statement of Financial Position (SOFP).
What are the operating expenses for service businesses?
Operating expenses related to the provision of services in the Income Statement (IS), with no inventory or Cost of Sales.
What management decisions are involved in management accounting?
Operating decisions (product mix, pricing, dividends), financing decisions (mix of debt and equity), and investment decisions (new projects, R&D, takeovers).
What are variable costs?
Costs that vary in relation to a change in activity levels, such as direct materials.
What are fixed costs?
Costs that do not vary as activity levels change, such as factory rent.
How do total variable costs behave?
Total variable costs change as activity changes, while variable cost per unit remains the same.
How do total fixed costs behave?
Total fixed costs remain the same, but fixed cost per unit decreases as more units are produced.
What are stepped costs?
Costs that remain fixed to a certain level of activity and then change in a step-like fashion.
What are semi-variable costs?
Costs that have both fixed and variable components, such as some packaging costs.
What are direct materials in manufacturing costs?
Materials that become an integral part of the product and can be traced directly to it, e.g., a radio in a car.
What is direct labour in manufacturing costs?
Labour costs that can easily be traced to individual units of the product, e.g., wages of car assembly workers.
What are manufacturing overheads?
Manufacturing costs that cannot be traced directly to specific units, including indirect materials and labour.
What are non-manufacturing costs?
Costs related to marketing, selling, and administrative functions.
How is Cost of Goods Sold calculated for trading businesses?
Opening inventory + purchases - Closing inventory.
How is Cost of Goods Sold calculated for manufacturing businesses?
Opening inventory + Cost of goods manufactured - Closing inventory.
What are the current assets for traders on the balance sheet?
Cash, debtors, prepaid expenses, and inventory for sale.
