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6 Cards in this Set
- Front
- Back
- 3rd side (hint)
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What is a cost object? Why is it important? Give an example of a cost object? |
A cost object is: -Any item or activity for which a separate measurement of cost is desired. -Anything that causes an organization to incur costs.
It's important because: -it helps to see if costs are reasonable -it helps to derive pricing from a baseline cost -it helps to derive the full cost of a relationship with another entity
Examples of a cost object are: -consulting services -customers when the cost of selling or delivering is known -project design costs |
Any Item or activity |
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What is a Cost unit? What is its importance? What are the examples of cost unit? |
Is a physical measure of a product or service in relation to which costs are determined and ascertained.
It's important because: -it identify z and analyzes a company s unit cost to check if it's producing a product efficiently. -it's a focal point for allocating costs as they are incurred.
Examples are: -school>lecturer/student -hospital>patient/doctor
Examples of a cost unit are:
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Physical measure of a product or service |
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What is a Cost Center? Why is it important? What are the examples? |
-Is a production or service location,a function,an activity or an item of equipment for which costs are accumulated. -a collecting place for costs before they are analyzed further.
It is important because: -it keeps close track of expenses of operating a cost center by allowing the organization to control total costs. -it allocates resources more strategically & calculates profitability on a product or departmental basis.
Examples of a cost are: -a project -customer service -a department e.g accounting department -a machine/group of machines |
A production/service location |
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What is a variable cost? Why they are important?what is an example of a variable cost? |
Costs which vary in direct proportion to changes in volume or level of activity. -They significant they help understand the effect on total costs of increasing production and determination of prime costs of products. -help managers meet targets and goals of the business as the goals are linked to financial aspects of revenue and profit Examples are: fuel costs, direct material costs |
They change with activity |
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What is a fixed cost?why are they important?give examples |
Costs that remain constant and unchanged when the activity level or volume changes for specific period of time. They are important because: -they help organizations in determining costs which are relevant for decision making -they help organizations plan identify and analyze costs which may still be incurred even when there are no activities taking place in the organization. Examples are: -Rent -Salary of an employee |
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What is a mixed cost?why is it important?give examples |
A cost which contains both fixed and variable elements of cost. They are important because: -they help companies plan output levels of production because they may limit profitability and erode a companies bottom line. Examples are: Salary and commission of a sales representative |
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