Costs - Concepts and Classification

• It is the cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefits to the organization

  Cost
• Expired cost

  Expenses
• It is a cost that expires without producing any revenue benefit

  loss
• Classifications of Cost (cost classified as to...)

  1. as to relation to a product -manufacturing/product cost and non-manufacturing/ period cost
  2. as to variability
  3. as to relation to manufacturing department
  4. as to their nature as common or joint
  5. as to relation to an accounting period
  6. for planning, control, and analytical process
• It is ingredients that are transformed into finished products through the use of labor and factory overhead. This can be traced to the finished product they form part of

  Direct Materials
• These are minor materials and other production supplies that cannot be conveniently or economically traced to specific products and are part of factory overhead cost

  indirect materials
• What do you call to amount paid to those working directly on the product?

  Direct Labor
• What do you call to labor costs for specific product that can be economically traced to end product?


  Direct Labor Cost
• Where do we account indirect material and indirect labor?


  Factory overhead control
• What is included in the prime costs?

  Direct Labor and Direct Materials
• What is direct labor plus factory overhead

  Conversion cost
• What do you call to production related costs that cannot be conveniently and economically traced directly to end product?


  Factory Overhead
• What is under non - manufacturing costs or period costs?

  1. Marketing or Selling Expenses
  2. Administrative or general expenses
• It includes all costs necessary to secure customer orders and get the finished product into the hands of the customers. It is also called "order-getting" or "order - filling" costs. What is it?

  Marketing or selling expenses
• What are the two classification of fixed costs and what are they?

  1. Committed Fixed Cost - represent long term commitment e.g depreciation on equipment
  2. Managed Fixed Cost - cost incurred in short - term basis and can be more easily modified in response to management objectives e.g advertising, research and development and costs of trainingclassifications
• What do you call to cost that has items of cost that is fixed and variable?


  Mixed cost
• What are the two types of mixed costs?

  1. Semi-variable cost - example is electricity and telephone
  2. Step Cost - the fixed part changes abruptly at various activity level
• What are the methods to separate mixed costs into fixed and variable costs?

  1. scatter graph
  2. High - low point method
  3. method of least square
• steps on computing variable cost and fixed costs using high low method

  Step 1: Identify the highest activity, the cost of highest activity, the lowest activity, and the cost of lowest activity

  Step 2: Compute for Variable cost using this formula

  Highest Cost - Lowest Cost/ Highest Activity - Lowest Activity

  Step 3: Compute for fixed cost by subtracting the total cost of activity using the high or low activity to the variable portion which can be computed by multiplying the variable cost to either highest activity or lowest activity
• What do you call to the cost of facilities employed in two or more accounting period, operations, commodities or services?

  Common Costs
• What do you call to the cost of materials, labor, and overhead incurred in the manufacture of two or more products at the same time?


  Joint Cost
• What do you call to the expenditure intended to benefit more than one periods and is considered as an asset?


  Capital Expenditure
• What do you call to expenditure that will only benefit the current period and is recorded as an expense?


  Revenue Expenditure
• What costs are immediately charged to the particular manufacturing departments that incurred the costs since the costs can be conveniently identified?


  Direct Departmental Charges
• What do you call to costs that are originally charged to some other manufacturing departments but are later allocated or transferred to another department that indirectly benefit from said costs?


  Indirect Departmental Charges
• What do you call to predetermined cost for DM, DL, and FOH and is established by using the past information and in essence is the budget of production?

  Standard Costs
• What do you call to the cost that is present under one alternative but is absent in whole or in part under another alternative?


  Differential Cost
• What do you call to costs that changes across the alternatives?


  Relevant Cost
• It include executive. organizational, and clerical expenses that cannot be logically be included under either production or marketing

  Administrative expense
• Cost function formula

  
  

  y = a + bc

  
  

  wherein;

  y = total cost

  a = fixed cost

  b = variable cost

  c = no. of activity
• Formula for least square method

  b = ∑xy - (n)(x̄)(ȳ) / ∑x^2 - (n)(x̄)^2

  
  

  ȳ = a + bx̄