Cost Accounting

 
  • Fixed cost - costs that are independent of the number of products produced. Costs that stay the same regardless of the number of products produced. Eg. rent expense, salaries 

  • Variable cost - costs that change as the number of products produced changes. Eg. in a carpentry factory, the cost of screws will be a variable cost as it depends on the number of products produced which need screws. 

  • Direct material - (raw materials) → materials directly involved in the production process

  • Indirect material - materials not directly involved in the production process but necessary for the business to function. Eg cleaning materials 

  • Direct labour → work force directly involved in the production of the finished goods, eg factory worker

  • Indirect labour → labour not directly involved in the production of the final product, e.g. Factory manager, cleaning staff.  

  • Factory overheads -  total cost of production excluding direct labour and direct material.  E.g rent expense, salaries

  • Work-in-progress → products that are incomplete and still have to go through processes in the factory before being ready to be sold 

  • Total cost= prime costs+factory overheads

  • Prime cost → direct labour + direct materials 

Break-even → number of products that need to be sold to cover the cost of production without making a profit or loss. Measured in units ( i.e. tables)

image14.png

References

  • Anon., 2007. The Answer series: Grade 11 Accounting. 2007 ed. Cape Town: The Answer.

  • Anon., 2019. Investopedia. [Online]. Available at: https://www.investopedia.com/ [Accessed 3 October 2019].

  • Doctor, K., 2015. FLIPHTML5. [Online]. Available at: http://fliphtml5.com/fkul/mgtf/basic [Accessed 1 October 2019].

  • T Hall, D. W. P. S. A. A. P. G. P. F., 2017. Accounting Study Guide. 2016 ed. Musgrave: New Generation Publishers .

Neha Pillay (2019)