Cost Concepts And Principles II

Direct material cost refers to the cost of the materials that are directly used in the production of goods or services. This cost can be controlled by the management through various means such as negotiating better prices with suppliers, finding alternative suppliers, or implementing efficient inventory management practices. Therefore, the correct answer is a. controllable.

Selling and distribution cost is virtually always an after-production cost because it includes expenses incurred in marketing and delivering the product to customers after it has been produced. This cost is typically incurred after the production process is completed and the product is ready to be sold. Research and development cost, on the other hand, is incurred before production to develop and improve the product. Interest on capital is a financial cost that is not directly related to the production process. Therefore, the correct answer is b. selling and distribution cost.

Research and development cost is considered a pre-production cost because it is incurred before a product or service is produced. This cost includes expenses related to designing, testing, and improving a product or service before it is ready for mass production. These costs are necessary to develop and create a product or service and are typically considered as part of the overall production cost.

Job costing is the best method of costing for an interior decorator because it allows for the tracking and allocation of costs to specific projects or jobs. Interior decorating projects are typically unique and vary in terms of materials, labor, and other costs. Job costing enables the decorator to accurately determine the costs associated with each project, helping them make informed decisions about pricing, resource allocation, and profitability. This method ensures that costs are allocated to the specific job or project, providing a clear picture of the expenses incurred and helping in effective cost control.

Operating costing is used in hospitals because it is a method of costing that is suitable for industries where the production process is continuous and the output cannot be measured in terms of units. In hospitals, the services provided are continuous and cannot be measured in terms of units, making operating costing the appropriate method to determine the cost of providing healthcare services.

When an amount deposited in a bank is withdrawn for financing a project, the loss of interest on the bank deposit is referred to as opportunity cost. This is because by using the funds for the project, the opportunity to earn interest on the deposit is foregone. Opportunity cost represents the value of the next best alternative that is forgone when a decision is made. In this case, the next best alternative would have been earning interest on the bank deposit.

Historical costs refer to costs that have already been incurred and are known. These costs are based on past transactions and events, and they are used for record-keeping and financial reporting purposes. Historical costs are important for evaluating the profitability and financial performance of a company, as they provide a basis for comparing current and future costs. They are different from imputed costs, which are hypothetical costs assigned to goods or services that do not have a market value, sunk costs, which are costs that have already been spent and cannot be recovered, and opportunity costs, which are the costs of forgoing the next best alternative.

When premises are owned, a charge in lieu of rent is considered an imputed cost. This means that even though the owner does not actually pay rent to themselves, they still assign a cost to the use of the premises as if they were renting it out to someone else. This imputed cost reflects the opportunity cost of using the premises for their own purposes instead of renting it out and earning rental income.

Prime cost refers to the direct costs involved in the production of goods or services, such as direct materials and direct labor. Variable overhead refers to the indirect costs that vary with the level of production, such as utilities and maintenance. When prime cost is added to variable overhead, it gives the marginal cost, which represents the additional cost incurred for producing one more unit of output. Therefore, the correct answer is b. marginal cost.

A cost per unit that remains constant regardless of the volume of output is known as a fixed cost. This means that the cost per unit does not change as the volume of output increases or decreases. Fixed costs are typically associated with expenses that do not vary with production levels, such as rent, insurance, or salaries.