Elements of Costing Flashcards
6 cards from real AAT L2 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Elements of Costing flashcards as text
The prime cost of a product is calculated as:
Answer: Direct materials + Direct labour + Direct expenses
Prime cost includes only direct costs: direct materials, direct labour, and any direct expenses. It excludes all indirect costs (overheads). Prime cost represents the costs directly traceable to the units produced.
A manufacturing business produces 10,000 units. Fixed costs are £50,000 and variable costs are £3 per unit. What is the total cost?
Answer: £80,000
Total cost = Fixed costs + Total variable costs = £50,000 + (10,000 × £3) = £50,000 + £30,000 = £80,000.
Cost centres are best described as:
Answer: Sections of the business to which costs can be charged for control purposes
A cost centre is a department, function, or area of the business to which costs are allocated for the purpose of cost control and performance measurement. Examples include the assembly department, the packaging department, or the canteen.
Overheads are also known as:
Answer: Indirect costs
Overheads are indirect costs that cannot be directly attributed to specific units of production. They include production overheads (factory costs), administrative overheads, and selling and distribution overheads.
If a product has a total cost of £25 and is sold with a 40% mark-up on cost, what is the selling price?
Answer: £35.00
A 40% mark-up on cost means the profit is 40% of the total cost. Profit = £25 × 40% = £10. Selling price = Cost + Profit = £25 + £10 = £35.
Which of the following is classified as an administrative overhead?
Answer: Salary of the finance team
The finance team's salary is an administrative overhead — it supports the general running of the business rather than production or selling activities. Factory depreciation is a production overhead, and delivery wages are a distribution cost.