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
Which of the following is classified as a direct cost?
Answer: Raw materials used in production
Direct costs can be directly attributed to a specific unit of production. Raw materials used in manufacturing a product are a direct cost because they can be traced to individual units. Factory rent is an indirect cost as it cannot be attributed to specific units.
The formula for calculating total cost is:
Answer: All of the above are correct
Total cost can be expressed in multiple ways: as direct costs plus indirect costs (overheads), as fixed costs plus variable costs, or as direct materials plus direct labour plus overheads. All three formulas produce the same total cost figure.
A variable cost is one that:
Answer: Changes in total in direct proportion to the level of activity
Variable costs change in total in direct proportion to the level of output or activity. If production doubles, total variable costs double. However, the variable cost per unit remains constant. Examples include raw materials and direct labour paid per unit.
Factory supervisors' salaries are classified as:
Answer: Production overheads (indirect costs)
Factory supervisors oversee the production process but do not work directly on individual products. Their salaries cannot be directly attributed to specific units of output, making them an indirect cost classified as production overhead.
A semi-variable cost:
Answer: Has both a fixed element and a variable element
A semi-variable (mixed) cost has both a fixed component (incurred regardless of activity) and a variable component (changes with activity level). For example, a phone bill with a fixed monthly line rental plus variable call charges.
Which of the following is an example of a fixed cost?
Answer: Annual insurance premium for the factory
An annual insurance premium is a fixed cost because it remains the same regardless of the level of production or sales activity during the year. Direct materials, sales commission, and packaging are variable costs that change with activity.