1) Why do accountants distinguish between so many different types of costs?

Provide
examples to explain your answers.
- Because management accountants want to provide the most useful information to
decision makers – i.e. internal and external stakeholders. Different types of
decisions and activities affect costs differently. Accountants have to distinguish
between these cost affects (often called cost behaviours) in order to better support
decision making.
- For instance, managers want to know variable cost and fixed cost to decide
whether their factory should increase/decrease the quantity of output, expand their
business or even shut down their business. Period costs show how much they
paid/pay/prepare budget to pay: salaries, interest on loans, advertising, office
expenses (rent,..), legal or professional fees,… => better control cost.
2) What is the difference between revenue and profit? Explain using specific
examples from a coffee shop.
- Revenue: The dollar amount generated from a sale of goods or provision of services
(or any other use of capital or assets) associated with the main operations of an
organisation. Revenue is measured before any costs or expenses are deducted.
- Profit: The positive gain remaining for a business after costs incurred to earn
revenue have been deducted from revenue
- Example:
The amount of money spent by the coffee shop to make a cup of coffee available for
sale: 20,000 VND
I buy a cup of coffee: 60,000 VND
=> Costs incurred to make 60,000VND revenue would be 20,000VND
Profit the coffee shop earns: 60,000VND – 20,000VND = 40,000 VND
3) Several costs incurred by Golfers Paradise Golf Equipment Pty Ltd are listed below.
For each cost, indicate which of the following classifications best describe the cost.
More than one classification may apply to the same cost item. Remember to
explain your answers!!

Cost Classification:
Period / product cost
 a) Period
Commissions paid to sales personnel. Commissions here can be considered as non-
manufacturing costs/ selling expenses because sales personnel are not directly
involved in producing goods but selling goods.

b) Product
Metal used in golf clubs

Wages paid to employees who assemble golf bags

These are the costs of materials and labour required to make golf bags that can be
directly attributes to the products.

Product cost
a) Direct material
Metal used in golf clubs
Metal here is the raw material that go directly into producing golf bags.
b) Direct labour
Wages paid to employees who assemble golf bags
Because these employees directly involved in manufacturing the goods (golf bags)

c) Manufacturing overhead
Note: manufacturing overhead does not include selling and administrative functions
of a business but indirect costs during production process (wages paid to
manufacturing manager, quality control staff,…)

Cost Items:
a) Metal used in golf clubs
b) Commissions paid to sales personnel
c) Wages paid to employees who assemble golf bags