Question

Please read Chapters 5 and 6

Expenses are the costs that relate to the earnings of revenue. Another way to think of expenses is as the cost of doing business. Just as revenues represent the inflow into the organization, so do expenses represent the outflow- a stream of expenditures flowing out of the organization.

Direct cost can be specifically associated with a particular unit or department or patient. The critical distinction for the manager is that the cost is directly attributable. Remember direct cost can be traced. Indirect cost, on the other hand, cannot be specifically associated with a particular cost object.

·        Complete Practice Exercise 5–1: Grouping Expenses by Cost Center

·        Complete Practice Exercise 6–1: Identifying Direct and Indirect Costs

Answer 1

Exercise 5–1: Grouping Expenses by Cost Center

Answer :- Cost center are the centers which worked only for the cost There is no reponsibilty of the staff members working in the cost centers Cost centers are the centers which are worked to reduce the cost expenses or allocation of cost expenses as per diffrent groups. The main or we say primary reason for the cost center element is to distribute or assigns ownership on the basis of individual or a group.The very most important function of the cost centers is to track or find out the expenses seperating which helps us to decide the price of the product for sell out including profit over cost.

Exercise 6–1: Identifying Direct and Indirect Costs

Answer - It is true in given that the direct cost is directly attributable. Remember direct cost can be traced. Indirect cost, on the other hand, cannot be specifically associated with a particular cost object. Direct cost is shown in the trading account while the Indirect cost is to be shown in the Profit and loss account. The indirect cost includes the cost of selling expenses or travelling charges telephone expenses or we say stationery expenses while the Direct cost are the cost of Direct labour or the cost of Raw material Mainly Direct cost is the cost which can easily be indentified as per single component.