AC103 Definitions and Essay Questions
Cost Object: is any 'product, service, centre, activity, customer or distribution channel in
relation to which costs are ascertained'. A cost object is any item for which cost measurement
is required.
Cost Driver: Any factor that causes a change in the cost of an activity.
Product Costs: Total cost of purchasing or producing goods / delivering services to
customers.
Period Costs: All other selling and administrative costs that are not included in product cost,
such as advertising, salaries etc.
Variable Costs: As the level of production/activity varies the material and labour costs also
vary.
Fixed Costs: As the level of production/activity varies the cost remains constant.
Stepped Costs: Remain fixed for a certain amount of production, up to a point where the
costs have a sharp increase, and then level out again. E.g. machinery hire.
Semi-variable costs: As the level of production increases, costs also increase, though there is
also a fixed element. E.g. telephone bills, fixed rate to start off with up to a limit.
Direct material: An integral part of the product and can be conveniently traced directly to it.
Direct Labour: Those labour costs that can easily be traced to individual units of product.
Manufacturing overheads: Manufacturing costs that cannot be traced directly to specific
units produced. They include: indirect material, indirect labour and factory overheads.
Prime Cost: Direct Materials and Direct Labour
Conversion Cost: Direct Labour and Manufacturing Overhead
Full costs: Made up of all of direct costs and a share of related indirect costs.
Job (order costing): specific orders, readily identified units e.g. Aircraft
Batch costing: Group of identical or similar units. A number are costed together, instead of a
single item.
Process costing: Continuous operations, large numbers of nearly identical products e.g. oil
Step-down method: Allocates service-department costs to BOTH operating departments
AND support departments
Cost Object: is any 'product, service, centre, activity, customer or distribution channel in
relation to which costs are ascertained'. A cost object is any item for which cost measurement
is required.
Cost Driver: Any factor that causes a change in the cost of an activity.
Product Costs: Total cost of purchasing or producing goods / delivering services to
customers.
Period Costs: All other selling and administrative costs that are not included in product cost,
such as advertising, salaries etc.
Variable Costs: As the level of production/activity varies the material and labour costs also
vary.
Fixed Costs: As the level of production/activity varies the cost remains constant.
Stepped Costs: Remain fixed for a certain amount of production, up to a point where the
costs have a sharp increase, and then level out again. E.g. machinery hire.
Semi-variable costs: As the level of production increases, costs also increase, though there is
also a fixed element. E.g. telephone bills, fixed rate to start off with up to a limit.
Direct material: An integral part of the product and can be conveniently traced directly to it.
Direct Labour: Those labour costs that can easily be traced to individual units of product.
Manufacturing overheads: Manufacturing costs that cannot be traced directly to specific
units produced. They include: indirect material, indirect labour and factory overheads.
Prime Cost: Direct Materials and Direct Labour
Conversion Cost: Direct Labour and Manufacturing Overhead
Full costs: Made up of all of direct costs and a share of related indirect costs.
Job (order costing): specific orders, readily identified units e.g. Aircraft
Batch costing: Group of identical or similar units. A number are costed together, instead of a
single item.
Process costing: Continuous operations, large numbers of nearly identical products e.g. oil
Step-down method: Allocates service-department costs to BOTH operating departments
AND support departments
