COST ACCOUNTING

• Cost accounting is the process of identifying, measuring, accumulating, analyzing, recording, reporting, interpreting, and communicating costs to support management decisions.
• The cost accounting system provides information about product or service costs that can be used by managers to make informed business decisions.
• Cost accounting systems are designed to collect data on all activities within an organization and assign costs to products or services based on their usage.
• Fixed + Variable cost=

  Total cost
• Fixed + (variable cost x units) =

  Total cost
• Total variable costs change when


  activity changes
• When activity changes total fixed costs

  remain unchanged
• Raw materials are an example of what cost?

  Total variable costs
• Factory building deprecation is an example of what cost?

  Total fixed costs, as it will not change with the level of production
• Direct labour (wages) is an example of what cost?

  variable cost
• Factory water, light, and electricity is an example of what cost?

  Variable cost (electricity could be mixed- according to lecturer)
• Sales commission is an example of what cost?

  Variable cost
• Delivery costs is an example of what cost?

  variable costs
• land tax is an example of what cost?

  Fixed cost
• Insurance is an example of what cost?

  Fixed cost
• Supervisory salaries is an example of what cost?

  Fixed cost
• Deprecation is an example of what cost?

  Fixed cost
• Advertising is an example of what cost?

  Fixed cost
• What are the assumptions of cost behavior? (2)

  -Relevant range

  -Linearity
• What is relevant range?


  Level of activity over which a particular cost behavior pattern exists
• What is the contribution margin format?

  Sales-VC=CM-FC=profit/loss
• What does the contribution margin format represent?

  Difference between sales revenue and variable expenses
• Why is the contribution margin format useful? (2)

  -Useful in planning, control, and evaluation processes.

  -Emphasizes cost behavior
• What is the contribution margin ratio?

  Contribution margin/Sales
• What are the four questions involved in the Cost volume profit analysis?

  1)What volume of sales is needed to cover total costs ?

  2)What sales volume must be achieved to reach a targeted profit?

  3)If there is a change in FC or VC what impact will that have on the sales volume needed to cover costs?

  4)What would be the impact of a change in selling price?
• What is the formula for CVP?


  Sx= VCx + FC + p
• What is break even analysis? (2)


  1)Determines the activity level required to cover all costs associated with the business.

  2)Assesses activity level required to achieve profit targets.
• BE (units)= 


  FC/UCM
• BE ($)=


  (FC/UCM) x SP
• BE (units + desired profit)=


  (FC+ desired profit/UCM)
• BE ($ + desired profit) =


  ((FC + desired profit/UCM) x SP)
• What are the 3 weaknesses of breakeven analysis?

  1)Non-linear relationships

  2)Stepped fixed costs

  3)Multiproduct businesses
• Total costs=


  Direct costs + indirect costs
• Product costs= 


  Raw materials + direct labor + allocation of overhead (MOH)
• What are direct costs?

  Raw materials and direct labor. Can be conveniently traced to a unit of product or other cost objective
• What are indirect costs?

  cannot be easily and conveniently traced to a unit of product or other cost objective. Would be incurred even if the product of activity were discontinued.
• what is product costing?

  ascribe all possible direct costs to the job and then charge each unit of output with a fair share of indirect costs
• COGS=


  Product cost x units sold
• What is a manufacturing overhead?

  includes all manufacturing costs except raw material and labour
• What type of overhead is maintenance and cleaning?

  Manufacturing