Basic Costing Homework Recap

Basic Costing Lesson 2 Chapter 2 - Elements of income and cost

Objectives Explain why bank reconciliations are carried out List 4 examples of items which may not appear on the cash book List 4 examples of items which may not appear on the bank statement Check items on a bank statement against the cash book identifying any discrepancies Prepare a reconciliation statement

Classifying costs Capital Revenue

Classifying through function Production costs Selling and distribution costs Administration costs Finance costs

Direct / Indirect costs Direct costs relate to the units produced. Indirect costs do not relate directly to the units produced.

Classification by function DIRECT = PRODUCTION Can be measured in terms of cost unit INDIRECT = PRODUCTION or NON-PRODUCTION / OTHER Cannot be measured in terms of cost unit

Classification of costs by element Materials Labour Expenses / Overheads

Production Costs -Materials-Direct/indirect -Labour-Direct/indirect -Expenses-Direct/indirect Materials Direct Indirect Labour Direct Indirect Expenses Direct Indirect

Materials Analysing the material costs 1. Determine quantity and cost of each type of material 2. Determine cost of materials being used by each cost centre

Labour Gross Pay Basic Pay Overtime Bonus Payments ERNIC (Employers National Insurance Contribution)

Expenses Specific expenses – directly incurred by a single cost centre. Cleaning and repair of machinery Joint expenses – incurred by several cost centres and the costs APPORTIONED between the cost centres. Rent

Overheads Indirect materials + Indirect labour + Indirect expenses = OVERHEADS

Recap Classification by function Direct and Indirect costs Material, Labour and Expenses Apportioning expenses to cost centres