Costs and Cost Behaviour Practice Flashcards

A set of vocabulary-style flashcards covering key definitions, cost classifications, and cost behavior behavior from the lecture notes.

Costing

A process that allows accountants to record costs in a way that provides useful information to managers for making vital decisions about a business.

Direct materials

Ingredients or materials used in the production process, such as the eggs and wheat used to make the pastry for pies.

Cost centre

An abstract idea used to group related costs together by location, function, activity, or equipment to help managers understand and control spending.

Function cost centre

A cost centre that refers to an entire department or role within an organisation, such as admin or production.

Activity cost centre

A sub-section of a department related to a specific task that is undertaken, such as the baking of pies within a production department.

Service location cost centre

A classification that pools costs based on where it is based, such as at a specific shop outlet, a regional level, or a national level.

Equipment cost centre

A grouping of all costs associated with the purchasing and running of a particular piece of machinery, including insurance, warranties, and maintenance.

Labour

The cost of wages, salaries, and all other employment-related costs such as personnel insurance, health benefits, and pension plans.

External Expenses

External overheads not directly linked to production and operations, such as rent on property or utility bills for heating and electricity.

Direct costs

Materials, labour, and expenses used in the production of a company's products that directly relate to each unit of production.

Indirect costs

Materials, labour, and expenses that cannot be directly attributed to individual units produced but are nevertheless necessary for the business.

Overheads

The total value of all indirect materials, indirect labour, and indirect expenses combined.

Prime cost

The figure created by consolidating all direct materials, direct labour, and direct expenses; also known as total direct cost.

Factory cost

The total production cost, calculated by adding production overheads to the prime cost.

Fixed costs

Costs that remain the same no matter how many units are produced or sold, such as commercial property rent.

Stepped fixed costs

Costs that remain constant within a certain level of activity but move up to a new level once production reaches a certain capacity.

Variable costs

Costs that are directly linked to the level of production, where higher production amounts result in higher costs.

Semi-variable costs

Costs that contain both fixed and variable components, such as a delivery van with fixed insurance costs and variable fuel usage.

High-low method

A technique used to predict fixed and variable costs by considering the total cost data from only the highest and lowest levels of recorded activity.

Linear regression

A mathematical method used to find an equation for the line of best fit, expressed as $Y = a + bx$, for more accurate cost calculations.