Chapter 3 Cost Classification
Exam guide: Key areas of the syllabus
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Chapter 3 Cost Classification
Section 5 Cost Classification
Objective:
Explain and illustrate classifications uses in analysis of product/service costs including by function,direct and indirect,product and period,fixed and variable,avoidable and unavoidable,controllable and uncontrollable
Explain and illustrate the concept of cost objects,cost units,cost centres,revenue centres,profit centres and investment centres
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Chapter 3 Cost Classification
Describe briefly the process of accounting for input costs and relating them to work done
Explain the difference between the treatment of direct and indirect expenses
Describe the various types of responsibility centers and the impact of these on management information
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Chapter 3 Cost Classification
Total product /Service costs
Material ,Labor(wages and salaries) and other expense(rent and rates,electricity and gas bill,depreciation)
Direct costs and indirect costs
Direct costs-increase as inputs of product/service increase
direct material costs
direct labor costs Prime costs
direct expense costs
See example p51-52
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Chapter 3 Cost Classification
production overhead
Indirect costs(overhead) administration overhead
selling overhead
distribution overhead
Functional costs
Production or manufacturing costs
Administration costs
Marketing or selling and distribution costs
General overheads(R&D costs)
Financing costs
See p55
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Chapter 3 Cost Classification
Fix costs and variable costs
Direct materials
Direct labor Variable cost
Direct expenses
Indirect costs Fixed costs
Production costs and period costs
direct materials
Production costs direct labor
direct expenses
manufacturing overheads
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Chapter 3 Cost Classification
Period costs administration
selling &distribution
financing
Other cost classifications
avoidable costs controllable
unavoidable costs uncontrollable
discretionary costs advertising
R & D
training
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Chapter 3 Cost Classification
Cost units, cost objectives and responsibility centres
cost centres---department,project,machine,overhead
cost object---product,service,department
cost units---kilograms, patient episode,barrel ，room
profit centres
responsibility centres revenue centres
investment centres
See p57-59
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Chapter 3 Cost Classification
Note:
premium , bonus payment, idle time payment to
both direct workers or indirect workers are indirect costs as
part of overhead
2. Tell the difference between direct costs and indirect costs, between production costs and production overhead , between production costs and period costs
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1. Which of the following would not be classed as indirect labor
The basic pay of direct workers’ overtime
The basic pay of indirect workers
Overtime premium of direct workers
Idle time pay of direct workers
Bonus to direct workers
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Chapter 3 Cost Classification
Answer:A
2. A company employs four supervisors to oversee the factory
production of all its salaries paid to these
supervisor are:
A direct labor cost
A direct production expense
A production overhead
An administration overhead
Answer:C
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