4 - Absorption costing Flashcards
what is absorption costing
a product costing/inventory valuation method which includes all production costs in the valuation
what is a production/service cost centre
production = factory cost centres through which cost units actually flow
service = support/service the production cost centres
what is allocation/apportionment
allocation = when whole cost items are charged to a cost centre
apportionment = when cost items are divided between several cost centres
what are the steps of absorption costing
- allocate (materials/labour)
- allocate and apportion
- reapportion
- absorb
formula to apportion
total overhead x fair proportion
which BASIS would rent, rates, heating and light, repairs and depreciation of buildings use to apportion
floor area occupied by each cost centre
which BASIS would depreciation and insurance of equipment use to apportion
cost or book value of equipment
which BASIS would personnel office, canteen, welfare, wages and cost offices and first aid use to apportion
no of employees, or labour hours worked in each cost centre
which BASIS would heating and lighting use to apportion
volume of space occupied by each cost centre
reapportionment definition
process of transferring all service cost centres overheads to the production cost centres
OAR
production OH / activity level
bases that can be used for OAR
per unit
per labour hour
per machine hour
less common:
% of direct labour cost
% of direct materials cost
% of prime cost
blanket or single factory OH absorption rate?
an absorption rate used throughout a factory and for all jobs and units of output irrespective of department in which they were produced
predetermined OAR
budgeted OH / budgeted activity
OH absorbed
actual activity x predetermined OAR
