What is the definition of a cost?
A physical quantity measurement
Multiplied by a price measurement
100 units at 6€ = cost of €600
What classifications is there?
Which variy directly with changes in the level of activity, over a defined period of tim
Which is not affected by changes in the level of activity, over a defined period of time
Directly traceable to an identifiable unit, such as a product or service or department of the business for which cost are to be determined
Are spread over a number of identifiable units of the business such as products or services or departments for which cost are to be determined. Indirect cost are also called overhead costs.
those costs associated with goods or services purchased or produced for sale to customers
Those costs which are treated as expenses in the period in which they are incurred.
What is the meaning of activity and output?
Activity= generally, any physical operation that takes place in an organization
Output= Product or service provided by the organization
Partly fixed and partly varies with changes in the level of activity over a defined period of time
Explain step cost?
Fixed cost increases by steps
What are some examples of variable costs?
-Materials used to manufacture a unit of output or to provide a type of service
-Labour costs of manufacturing a unit of output or providing a type of service
-Commission paid to a salesperson
-Fuel used by a haulage company
What are some examples of fixed costs?
-Rent of buildings
-Salary paid to a supervisor
-Advertising in the trade journals
-Business rates paid to the local authority
-Depreciation of machinery calculated on the straight-line basis
What are some examples of semi-variable costs?
-Office salaries where there us a core of long-term secretarial staff plus employment of temporary staff when activity levels rise.
-Maintenance charges where there is a fixed basic charge per year plus a variableelement depending on the number of callouts per year
Explain cost centre?
A unit of the organization in respect of which a manager is responsible for costs under his or her control
Explain profit centre?
A unit of the organization in respct of which a manager is responsible for revenue as well as costs
Explain investment centre?
A unit of the organization in respct of which a manager is responsible for capital investment decisions as well as revenue and costs.