Basic Costing

Homework

Recap

Basic Costing

Lesson 2 Chapter 2- Elements of income and cost

ObjectivesExplain 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 functionDIRECT = 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

MaterialsAnalysing the material costs

1.Determine quantity and cost of each type of material

2.Determine cost of materials being used by each cost centre

LabourGross 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

OverheadsIndirect materials

+Indirect labour

+Indirect expenses

=OVERHEADS

RecapClassification by function

Direct and Indirect costs

Material, Labour and Expenses

Apportioning expenses to cost centres