III. What meaning have the following word combinations?

Cost finding, process costing, job order costing, prime costs, overhead costs, job lot, activity-based costing, production volume, average costs, efficiency of operations, variable costs, fixed costs, mixed costs, cost drivers.

IV. Find the pairs of opposites.

reduce upper seldom expensive input difficult external costs

output cheap easy revenues raise lower often internal

Make up your own sentences using these words.

V. Math the concepts with their definitions.

Cost driver Fixed cost Mixed cost Variable cost Cost finding 6. Activity-based costing

… is a cost that is constant in total as the amount of cost driver changes. … is a cost that varies in total in proportion to the change in cost driver. … is the means of measuring activity that reflects consumption of resources. … is a process of estimating costs before production takes place. … is estimating how a cost reacts to changes in the level of operating activity. … is a cost that varies in the same direction as a cost driver but not in direct proportion and has both a fixed and a variable component.

VI. Complete each sentence with a phrase from the box.

overhead costs, cost finding, prime costs, the company’s products, activity-based costing, fixed costs

1. A major factor in business planning is the cost of producing …

2. The methods of … are used to estimate the costs incurred in manufacturing specific products.

3. … can be traced directly to a specific batch, or job lot, of products.

4. … can be traced only to the factory as a whole and not to individual job orders.

5. … is based on the fact that many costs are driven by factors other than product volume.

6. When a management decision changes the company’s …, the change is unlikely to be proportional to the change in volume.

VII. The following statements have mistakes.

Correct them.

1. A variable cost does not change in total as the amount of cost driver changes.

2. A fixed cost changes in total in direct proportion to the change in the level of cost driver.

3. Process costing can’t be used in continuous production processes.

4. Overhead costs are traced to job lot.

5. Activity-based costing is the process of estimating costs after production takes place.

VIII. Read the text and answer the question:

What does the process of allocation mean?

Many production costs are incurred in departments that don't actually produce goods or provide salable services. Instead, they provide services or support to the departments that do produce products. Examples include maintenance departments, quality control departments, and internal power plants. Estimates of these costs are included in the estimated overhead costs of the production departments by a process known as allocation – that is, estimated service department costs are allocated among the production departments in proportion to the amount of service or support each receives. The departmental overhead rates then include provisions for these allocated costs.