This document provides an overview of classifying different types of costs in management accounting. It discusses direct and indirect costs, classifying materials and labor as direct or indirect, and defining fixed, variable, and semi-variable costs. Examples are given for each type of cost classification. The document also briefly introduces different costing methods like job costing, batch costing, process costing, contract costing, and service costing.

1. Session 2

2. Unit 9
Management Accounting

3. Classify different
Types of Costs

4. Review
of Last session
Test of baseline
knowledge
Types of Costs

6. What
are direct costs?
Name 5 direct costs
What are indirect
costs?
Name 5 indirect costs

7. A
price that can be
completely attributed to the
production of specific goods
or services. Direct costs
refer to materials, labor and
expenses related to the
production of a product.

8. Costs
which cannot be accurately
attributed to specific cost objects
are called indirect costs. These
typically benefit multiple cost
objects and it is impracticable to
accurately trace them to
individual products, activities or
departments etc.

9. 1.Laborers'
wages
2.Synthetic wood
3.Power
consumption
4.Glass
5.Nails and screws
6.Factory
insurance
• 7.Handles, locks and
hinges
• 8.Wood
• 9.Supervisors' salaries
• 10.Factory
depreciation
• 11.Varnish, glue,
paints
• 12.Factory manager's
salary

11. things
that are used in making a
product that become a part of that
product when it is finished
(Cambridge)
All
of the materials that go into
making a product. (Regis)

12. In order for a raw material to be classified as a direct
material, the amount of raw material must be easily
counted or kept track of.
 Here is an example. When making grocery bags, it is
pretty easy to keep track of the amount of paper being
used for each bag, but it is very difficult to know exactly
how much glue is being used to hold the paper bag
together.


In a nutshell, direct materials are those materials that
become part of the finished product... providing it is
possible and worth the effort to keep track of those
materials on a per product basis.

13.  In
what Industry (ies) do these materials
classified as direct/indirect materials:
(Name at least 5 each – 5 direct; 5
indirect)
 Paper
 Rubber
 Land
 Building
 Hairbrush

14. Employees
or workers who are
directly
involved
in
the
production of goods or services.
(accounting coach)
Direct labor represents the
people who do the core work of
the business. (Regis)


15. Construction
company, - people
actually constructing the building.
Retail store- people helping on the
sales floor doing the basic work that
takes place serving the customers.
Grocery bag factory- people running
the machines actually making the
bags.

16. 
In a Job order businesses. Almost any time a product is
customized for a customer, the company will operate on
a "job order" basis.

The labor must clearly be associated with a particular
job, in order for the labor to be called "direct
labor."

One last thought... If a person's labor cannot be easily
linked to a specific customer's order or the person does
not directly build the product, the person's labor is
called "indirect labor."

17.  In
what Industry (ies) do these Labor
classified as direct/indirect labor : (Name
at least 5 each – 5 direct; 5 indirect)
 Secretary
 Inspector
 Accountant
 Lawyer
 Carpenter

18. If a cost is not direct labor or direct materials, the
cost is overhead. (Regis)
Direct Overhead- Expense directly associated with
the production of goods or services, such as for
lighting, maintenance, and rent of a business
premises.
Indirect Overhead - Overhead not directly
associated (such as office expenses, telephone
expenses, R&D) with the
production of goods or services.

19. Fixed, Variable and SemiVariable

20. A
cost that does not change
with an increase or decrease
in the amount of goods or
services produced. Fixed
costs are expenses that have
to be paid by a company,
independent of any business
activity.

21. A
mobile phone manufacturing
company rents a building for its
factory for $5,000 per month, it will
have to pay $5,000 for every month
even no mobile phone is produced
during the month.
Required: Draw a graph of expense per
production level 1, 50, 100, 150, 200, 250,
300 units and explain

22. A
corporate expense that
varies
with
production
output. Variable costs are
those
costs
that
vary
depending on a company's
production volume; they rise
as production increases and
fall as production decreases.

23. A
mobile phone manufacturing
company purchases speakers from
another company at a cost of $2 per
speaker.
The speaker is a direct materials
cost for mobile phone manufacturing
company.
One speaker is used to complete a
mobile phone.

24. No. of mobile
phones produced
Cost of 1
speaker
Total cost
of speakers
1
$2.00
$2
50
$2.00
$100
100
$2.00
$200
150
$2.00
$300
200
$2.00
$400
250
$2.00
$500
300
$2.00
$600
Required: Draw a graph and explain

25. Compute
the fixed cost on a
per unit basis (per level of
production)
Compute the variable cost
per unit basis (per level of
production)
Explain your findings

26. A
cost composed of a mixture of
fixed and variable components. Costs
are fixed for a set level of production
or consumption, becoming variable
after the level is exceeded.
Sample:
Labor cost on regular and
overtime

27. Total
Cost = Direct Materials +
Direct Labor + Overhead
Total
Cost = Total Fixed Cost +
Total Variable Cost + Total
Semi-Variable Cost

28. Costing
methods:
job costing;
batch costing;
process costing;
contract costing;
service costing

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29. Use different costing
methods
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