COST CLASSIFICATION

What is the definition of cost?

• The total revenue generated from selling products

• The profit made after deducting expenses

• Cash or cash equivalents sacrificed to acquire goods/services

• The amount of tax paid on company earnings

Which of the following is an example of a direct cost?

• Factory rental cost

• Raw material cost

• Production manager salaries

• Advertising cost

Fixed costs are best defined as

• Costs that vary in direct proportion to production levels

• Costs that include both fixed and variable components

• Costs that increase only when revenue increases

• Costs that remain constant within a certain range, regardless of activity level

Which of the following is a mixed cost?

• Machine rental cost

• Electricity costs

• Raw material costs

• Direct labor costs

Production, marketing, and administrative costs are cost classification is based on function

• YES! IT'S TRUE

• NO!

Which of the following is considered a factory overhead cost

• Raw material cost

• Direct labor cost

• Machine maintenance cost

• Cost of finished goods

Which of the following is an example of a marketing cost?

• Factory building rent

• Advertising costs

• Direct labor costs

• Factory machine depreciation

What is the main objective of cost classification?

• To create additional revenue streams

• To reduce all company expenses

• To increase tax liabilities

• To facilitate better cost control and decision-making

Advertising expenses is an example of an indirect cost

• SO TRUE!

• BIG NO! NO!

A cost that changes in direct proportion to production levels is classified as

• Variable cost

• Fixed cost

• Mixed cost

• Sunk cost