Cost Classification The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs. Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor. Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment Flexible Budgets Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can be adjusted or modified to accommodate varying levels of activity. The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity. Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor. Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production. To Prepare: Flexible Budget Performance Report.

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Chapter 23, Problem 23SP

To determine

Introduction:

Cost Classification

The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can be adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Prepare:

Flexible Budget Performance Report.

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