Study Notes management accounting acca f2

Examples:
 
Direct
Indirect 
Transportation. import duties, royalty, etc.
Bills, rent, repairs, etc. 
 
Costs 
Direct costs Indirect costs
Direct Material Indirect Material 
Direct Labour Indirect Labour 
Direct Expense Indirect Expense 
Overheads
 
 
Production Overheads Non-Production Overheads
Related to production 
Not related to production 
Included in production cost 
Not included in production cost 
Used to determine production 
cost of one unit Used to determine total cost of 
one
 
Examples:
 
 
 
 
Examples: 
Machine oil, glue, supervisor salary, etc.
Sales manager’s salary, audit fee, etc
. 
 
Formulae:
Prime Cost
=
Direct Material +
Direct Labour + Direct Expense. 
Production Cost 
=
Prime cost
+
Production Overheads. 
Total Cost
=
Production Cost +
Non-Production Overheads. 
Conversion Cost
=
Direct Labour +
Direct Expense + Production Overheads. 
✓
By Function: 
 
Function: 
“All activities and operations of the company are called functions”.
In this classification we classify cost as per activity, operation, product, individual segment, division, 
department, etc. 
Examples:
1. Production / Manufacturing Costs 
Cost incurred in making the goods. There are three main elements of production costs
 
➢
 
Cost of Material 
➢