Cost of Production Report (CPR): Questions and Answers

Question 1 The MST Manufacturing Company produces one product that passes through a single process in a manufacturing cycle lasting approximately 18 days. Therefore, there will generally be some work-in-process inventories at the end of each month. After MST started its manufacturing operations on 1 January, the costs of production for the rest of the month are given as follows:   Materials $…

Read more

Classification of Cost

The idea of cost accounting is to collect, classify, record, and suitably allocate expenditures to determine the costs of products or services. After collecting costs, these are classified to ensure their identification with cost centers or cost units.  Costs have different features or characteristics, and they are grouped or classified based on their common characteristics. The process of groupin…

Read more

Cost Center and Cost Unit

In cost accounting, costs are understood in terms of cost centers and cost units. With this in mind, it is essential to know what these terms mean. What Is a Cost Center? The Institute of Cost and Management Accountants (ICMA), which is based in London, defined a cost center a location, person, or item of equipment (or a group of these) for which costs may be ascertained and used for the purposes…

Read more

Sunk Costs

Definition Sunk cost is the term used for a cost that has already been incurred and now cannot be avoided or changed and consequently it is irrelevant for the current decision-making situation. Explanation Sunk costs are those costs that have already been incurred. Sunk costs cannot be changed by a decision and hence they are irrelevant in the decision-making process. The important point here is t…

Read more

Difference Between Controllable and Uncontrollable Costs

All costs are controllable by someone in an organization. For this reason, the difference between controllable and uncontrollable costs depends on the choice of reference point. At the same time, time is a factor that influences controllability. Controllable costs are costs that can be made easily, and also that can be easily and effectively controlled by the responsible party. Costs that cannot b…

Read more

Difference Between Direct Costs and Indirect Costs

Direct Costs Definition Direct costs are costs that can be conveniently and economically identified with some cost objectives, or which can be associated with specific segments under consideration. Indirect Costs Definition Indirect costs are costs that cannot be conveniently and economically identified with cost objectives and must be allocated – on some equitable basis – to the cost objectives o…

Read more

Difference Between Product Costs and Period Costs

In a manufacturing organization, an important distinction exists between product costs and period costs. Product Costs Product costs (also known as inventoriable costs) are costs assigned to products. These costs are identified as being either direct materials, direct labor, or factory overheads, and they are traceable or assignable to products.  Product costs only become an expense when the produ…

Read more

Committed and Discretionary Fixed Costs

Fixed costs can be classified as either committed costs or discretionary costs. This depends on their immediate impact on the organization. Committed Fixed Costs Committed fixed costs, otherwise known as capacity costs, are the costs required to maintain current production capacity.  These costs arise from long-range decisions made by top managers about the size and nature of their organization. T…

Read more

Semi-Variable Costs

Semi-Variable Costs: Definition It is sometimes not possible to classify a cost as either fixed or variable. When this is the case, the cost is known as a semi-variable cost. These costs contain both a fixed element and a variable cost element.  Semi-variable costs are also referred to as mixed costs or semi-fixed costs. Costs of this kind may change, but they do not change in direct proportion to…

Read more

Variable Costs

Definition Total costs that change in direct proportion to changes in productive output or activity are Variable Costs. Typical variable costs include direct materials, direct labor, sales commissions and so on. or Variable cost is one which varies directly in proportion to every increase or decrease in the volume of output or production. It neither remains constant nor ever can remain so. Explana…

Read more