1. Managment Accounting Techniques

Question 1

Absorption Costing…

Answer 1

• Attempts to determine a ‘full’ cost per unit.
• Therefore includes Direct and Indirect costs.
• Uses allocation; apportionment & absorption to incorporate the indirect costs.

Question 2

Marginal Costing…

Answer 2

• Categorises costs according to behaviour.
• Variable & Fixed.
• Cost per unit is the variable or ‘marginal’ costs.
• Fixed costs regarded as time based & linked to periods not units of output.
• NB - Add fixed costs to marginal costs to get full absorption cost. (Ie absorption cost per unit includes variable costs according to Osborne)
• Remember only indirect costs relatng to production are absorbed …

Question 3

Activity Based Costing (ABC)…

Answer 3

• A development of absorption costing.
• Uses more sophisticated way 2 deal with Indirect.
• Determine cause of cost & charge to units accordingly.

Question 4

Direct costs..

Answer 4

costs directly attributable to units of output

Question 5

Indirect costs (Overheads)

Answer 5

• Cannot be directly attributed to units of production.

* Remember only indirect costs relatng to production are absorbed …

Question 6

Cost centres

Answer 6

• Parts of the Org where its convenient to gather costs.
• Production cost centres where the unit has some activity carried out.
• Service cost centres provide a service to other cost centres.

Question 7

Absorption bases

Answer 7

• Methods available to absorb cost from Prod CCs to units.
• All absorption bases use expected (budgeted) costs and activity levels to work out absorption rate.
• Examples of absorptin bases are Direct Labour Hours; Machine Hours; Units of output.

Question 8

Unit contribution

Answer 8

• Diff between selling price per unit and variable (marginal) costs per unit.
• The amount each unit contributes towards the fixed costs of the organisation and profit.
• Fixed costs are ignored at unit level as they go straight to the profit statement for the periood.

Question 9

Total contribution

Answer 9

• Diff between Sales income and the variable costs of the units sold in a period.
• Fixed costs go straight to the profit statement.

Question 10

Layout of a Marginal Costing Statement for a financial year,…

Answer 10

• Have 1 column for the Per Unit and 1 for the Period (ie Per year in this case)
• Rows are:

1. Sales
2. Less Variable costs
   ___
3. Contribution ( 1 minus 2)
4. Less fixed OHs (only in second column)
   ___
5. Profit (only in second column)

Question 11

ABC costing - pools and drivers

Answer 11

Analyse & group costs into pools. Each pool must have a driver.