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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?
- Variable Cost
- Which variy directly with changes in the level of activity, over a defined period of tim
- Fixed cost
- Which is not affected by changes in the level of activity, over a defined period of time
- Direct cost
- Directly traceable to an identifiable unit, such as a product or service or department of the business for which cost are to be determined
- Indirect cost
- 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.
- Product cost
- those costs associated with goods or services purchased or produced for sale to customers
- Period cost
- 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.