AC & ABC

Question 1

Formula for OAR (Marginal Costing)

Answer 1

Total Production Overhead / Total Basis of Absorption

Question 2

How to calculate Full Production Cost Per Unit?

Think of the Standard Cost Card

Answer 2

Direct Materials + Direct Labour + Direct Expenses.

Question 3

Name 2 benefits of MC

Answer 3

• Cost is simple and easy to calculate
• Better for the short-term where fixed costs are incurred anyway

Question 4

Name 2 benefits of ABC.

Answer 4

• Including fixed costs makes sure the business doesn’t under-price products
• It is in line with accounting standards therefore can be used to prepare financial statements