Classifying costs by behavior with changes in volume of activity involves:

18-20
Classifying costs by behavior with changes in volu

Answer

General guidance

Concepts and reason

Costs by behavior: Costs are classified based on behavior as fixed cost, variable cost and semi-variable cost depending upon changes in the level of activity. Period Costs: It is the costs which associate with the lapse of time or with a transactional event. Financial Accounting: Financial account is the preparation of financial statements such as profit and loss account, balance sheet, cash flow, etc.

Fundamentals

Fixed Cost: It is the cost which does not vary with the change in sales revenue. It is the cost which normally does not change in short run. However, it could be changed due to a specific decision of top management. This cost remains fixed in totality but does vary per unit. Some of the examples of fixed cost include factory rent, insurance, depreciation etc. Variable Cost: It is the production cost related to each of the units manufactured. It gets affected by a change in the production output level. Capitalized costs: Capitalized cost is the cost which is added to the fixed cost when fixed assets are purchased. Managerial accounting: It is also called as cost accounting. As the name suggests its main function is to compute costs of any product, service or process.

Step-by-step

Step 1 of 6

18. Costs by behavior along with the change in the volume of activity does not signify anything about identifying costs of goods sold and operating costs. Thus, this option is incorrect. Costs by behavior along with the change in the volume of activity does not signify anything about identifying costs as financial or managerial. Thus, this option is incorrect. Costs by behavior along with the change in the volume of activity does not signify anything identifying costs in a physical manner. Thus, this option is incorrect. Costs by behavior along with the change in the volume of activity does not signify anything about identifying both quantitative and qualitative cost factors. Thus, this option is incorrect.

Costs by behavior along with the changes in the volume of activity change the variable costs, fixed costs and semi-variable costs. On the basis of behavior, three types of costs are variable costs, fixed costs, and semi-fixed costs. However as per the given facts, it is said that costs by behavior with changes in the volume of activity involve identifying costs of goods sold and operating costs, costs as financial or managerial, costs in a physical manner, quantitative and qualitative cost factors.

Step 2 of 6

Costs by behavior’s functions with changes in the volume of activity are to identify fixed, variable and semi-variable costs.

Part 18

Costs by behavior with changes in the volume of activity involve identifying fixed cost and variable cost.


Costs by behavior are of three types that comprises variable costs, fixed costs, and semi-variable costs. Variable cost changes with the unit change in the level of inventory. Fixed costs are the costs which are fixed at all. Fixed costs that are fixed up to a specific volume of activity and there after the change is semi-variable costs. Costs by behavior’s functions with changes in the volume of activity are to identify fixed and variable costs. Thus, this option is correct.

Step 3 of 6

19. Costs that flows directly to the income statement as expenses are not the product costs. It is the period costs which flow directly to the income statement. Thus this option is incorrect. Costs that flow directly to the income statement as expenses are not the general costs. General costs are not any costs. It is just an undefined name. Thus this option is incorrect. Costs that flow directly to the income statement as expenses are not the balance sheet costs. As there are no balance sheet costs found in the cost accounting. Thus this option is incorrect. Costs that flow directly to the income statement as expenses are not the capitalized costs. As capitalized cost the costs which are added with the fixed costs when fixed costs purchased. Thus this option is incorrect.

Product costs are the costs which are related to the direct product cost, that’s why it is not the costs that flow directly to the income statement as expenses. General costs are not any costs which are defined in the costing. It cannot be said a proper costing term. Hence, it cannot be considered as cost that flow directly to the income statement as expense. Balance sheet cost is not a cost or any term which is used in the costing. It is undefined. Hence it cannot be the costs that flow directly to the income statement as expenses. Capitalized cost is the cost which is added to the fixed cost when fixed assets are purchased, that’s why it, not the costs that flow directly to the income statement as expenses.

Step 4 of 6

A cost that flows directly to the income statement as expenses is a period cost.

Part 19

A cost that flows directly to the income statement as expenses is a period cost.


Costs that flows to the income statement in direct manner as an expense is a period costs. A period cost is that cost which is not capitalized with any of capital or revenue expenditure. Period costs are the costs associates with the lapse of time or with a transactional event.

Step 5 of 6

20. Focus of financial accounting is more on the organization as a whole while the main focus of the managerial accounting is on the organization’s subdivision. Thus, this statement is incorrect. Neither managerial nor financial accounting ever includes nonmonetary information. Thus, this option is incorrect. Financial accounting is used extensively by investors and it is also used by creditors to know the financial position of the company. Managerial accounting’s main purpose is to provide information to management for internal decision making. Managerial accounting serves many purposes. Setting stock prices is also a feature of managerial accounting. Thus this option is incorrect.

Focus of financial accounting is more on the organization as a whole. Financial accounting possess the accounting information that is concerned about the whole organization. It is not restricted to sub divisions of the organization. It is incorrect to say that it focus mainly on the sub divisions. It is the managerial accounting whose main focus is on the sub divisions of the organization. It is not majorly concerned with the whole organization. Even though the non-monetary information possesses desired value and it important for any business organization, but this information is not taken into consideration by both managerial and financial accounting. Financial accounting is used by investors as well as by creditors to know the financial position of the company. Financial accounting prepares the financial statement which helps the creditors and investors in knowing the company very well. Managerial accounting is not used by investors. Thus this option is incorrect. There are too many uses of managerial accounting. To set stock prices is not the main use of managerial account but just use of managerial accounting to set the stock prices.

Step 6 of 6

Managerial accounting is different from the financial accounting. The former includes lots of projections and the later has minimum number of predictions. This statement is correct.

Part 20

Managerial accounting includes many projections and estimates whereas financial accounting has a minimum of predictions.


Managerial accounting includes many projections, budgeted values and estimates whereas the financial accounting has least number of projections and estimates associated with it. Financial information is based on actual figures whereas the managerial information includes both budgeted and actual figures. Managerial accounting gives information through cost report to management as and when desired whereas financial accounting reports operating result and financial position usually at the end of the year.

Managerial accounting is only a part of the financial accounts and discloses profit or loss of each product, job or service whereas financial accounts are accounts of the whole business. They are independent in nature.

Answer

Part 18

Costs by behavior with changes in the volume of activity involve identifying fixed cost and variable cost.

Part 19

A cost that flows directly to the income statement as expenses is a period cost.

Part 20

Managerial accounting includes many projections and estimates whereas financial accounting has a minimum of predictions.

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