1.2 Costing

• What is the definition of costing in accounting terms?

  Calculating expenses for production
• Expenses directly attributable to production are called direct costs.
• The total cost is the sum of all direct and indirect costs.
• Why is costing important for decision-making within a company?

  Enhances profitability and competitiveness
• Steps in calculating total cost in a comprehensive cost analysis

  1️⃣ Calculate direct materials cost

  2️⃣ Calculate direct labor cost

  3️⃣ Allocate manufacturing overheads

  4️⃣ Determine distribution costs

  5️⃣ Add administrative expenses

  6️⃣ Sum all costs to find total cost
• What is the formula for calculating total cost in a comprehensive cost analysis?

  Total Cost = Direct Materials + Direct Labor + Manufacturing Overheads + Distribution Costs + Administrative Costs</latex>
• Costs that do not change with the level of production or sales are called fixed costs.
• What is an example of a direct cost in manufacturing?

  Raw materials
• Total cost can be calculated as the sum of fixed and variable costs.
• Match the costing method with its characteristic:

  Job Costing ↔️ Used for unique projects

  Process Costing ↔️ Costs are averaged across all units
• When is job costing typically used?

  For unique projects
• What is a characteristic of process costing?

  Costs are averaged across all units
• Total cost is calculated as the sum of fixed costs and variable costs.
• What is an example of a direct cost?

  Raw materials
• Steps in job costing:

  1️⃣ Assign direct costs to each job

  2️⃣ Allocate overhead costs based on usage
• In process costing, direct costs are averaged across all units produced.
• What are the primary cost accounting techniques?

  Standard Costing, ABC, Marginal Costing
• Match the cost accounting technique with its key feature:

  Standard Costing ↔️ Compares actual costs to pre-set standards

  Activity-Based Costing ↔️ Allocates costs based on activities

  Marginal Costing ↔️ Identifies the incremental cost of one more unit
• Standard costs are pre-determined costs for raw materials, labor, and overhead.
• Under standard costing, total cost is calculated as direct materials, direct labor, and standard overheads.
• Which industry uses process costing to track costs in continuous production lines?

  Manufacturing
• Cost management strategies aim to reduce expenses while improving efficiency.
• Cost reduction involves lowering expenses without affecting product quality or service.
• Match the cost management strategy with its example:

  Cost Control ↔️ Setting spending limits for each department

  Budgeting ↔️ Creating a monthly budget for marketing activities

  Outsourcing ↔️ Using a third-party company for customer service
• Costing is the process of calculating expenses for goods and services.
• The importance of costing lies in its roles in decision-making, pricing strategies, and operational efficiency.
• What is an example of a fixed cost?

  Insurance
• Total cost equals fixed costs plus variable costs.
• Arrange the primary methods for determining product costs in a logical sequence.

  1️⃣ Identify direct costs

  2️⃣ Allocate overheads

  3️⃣ Assign costs to each job (Job Costing) or unit (Process Costing)

  4️⃣ Calculate total cost
• Match the costing method with its use case.

  Job Costing ↔️ Unique projects

  Process Costing ↔️ Mass production
• Job Costing is used by a construction company calculating costs for building a custom house.
• Activity-Based Costing (ABC) allocates costs based on activities that drive expenses.
• Marginal Costing identifies the incremental cost of producing one more unit.
• Match the industry with the appropriate costing method.

  Manufacturing ↔️ Process Costing

  Service ↔️ Job Costing

  Retail ↔️ Variable Costing
• Cost Management Strategies aim to reduce and control expenses while improving efficiency.
• Cost control can sometimes stifle innovation due to its short-term focus.
• Variance analysis identifies differences between budgeted and actual expenses.
• Match the cost element with its corresponding amount in the Job Costing scenario for a custom dining table.

  Raw Materials ↔️ $200$

  Direct Labor ↔️ $150$

  Overheads ↔️ $50$
• In Process Costing for 10,000 plastic bottles, the average cost per bottle is 1.