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AAT - Management Accounting: costing > Apportioning costs > Flashcards

Apportioning costs Flashcards

1
Q

What must I know about apportioning costs? P95

A

Recovery rate: - ABI
* calculate - appropriate cost drivers
* calculate -suitable bases of absorption
* Interpret significance - under/over recoveries of overhead costs

Costs - UPAS
* calculate the over/under absorption of costs
* make costs journals postings
* concept of activity base costing
* attribute overhead cosTs to production and** s**ervice centres- direct and step down

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2
Q

Whatthe relationship between cost units and overhead costs? P96

A
  • does not relate - specific unit
  • shared amongst all cost units they relate to
  • costs centre collection beforehand - function
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3
Q

What are the costs centres classified by function? P96

A

F SPA
* Finance - rising finance
* selling and distribution - attracting customers & delivering goods to them
* Production - factory overheads / operating overheads
* Administration - rent ,administrative, ooffice

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4
Q

What is absorption costing? P97

A
  • Full costs- onne unit of output - proportion of the overheads
  • proportion of the fixed costs - absorbed into products costs
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5
Q

What are the three stages involved in absorption costs ? P97

A

AAA
* Allocation
* Apportionment
* Absorption

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6
Q

How are the costs collected - absorption costing ? P97

A
  • Cost centres - organisation’s operations
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7
Q

What is the allocation process of absorption costing? P97

A
  • charging cos centes– costs incurred entirely by cost centre
  • e.g. paint spraying machine to paint shop
  • supervisor salary to cost centre they supervise
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8
Q

What is the apportionment process of absorption costing ?v P97

A
  • sharing out a costs
  • two or more different cost centres
  • OR department
  • suitable basis
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9
Q

What is the apportionment calculation? P98

A

total costs/ total quantity * quantity relating to cost centre

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10
Q

What could be a apportionment basis for gas? - p99

A
  • Area of cost centre
  • volume of cost centre
  • number of radiators
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11
Q

What could be a apportionment basis for electricity ? - P99

A
  • Area of cost centre
  • volume of cost centre
  • wattage of appliances ?
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12
Q

What could be a apportionment basis for inventories insurance? - P99

A
  • value of inventories
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13
Q

What could be a apportionment basis for building insurance? - P99

A
  • value of building used
  • area of building used
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14
Q

What could be a apportionment basis for plant insurance?

A
  • value of plant
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15
Q

What could be a apportionment basis for employer’s liability insurance ?

A
  • payroll costs
  • number of employees
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16
Q

What could be a apportionment basis for depreciation?

A

value of equipment

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17
Q

What could be a apportionment basis for telephones ?

A

number of extensions

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18
Q

What could be a apportionment basis for internet broadband ?

A

no of computer terminals

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19
Q

What could be a apportionment basis for maintenance?

A
  • value of equipment
  • area
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20
Q

What could be a apportionment basis for supervisor pay?

A

payroll costs

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21
Q

What could be a apportionment basis for rent?

A

area

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22
Q

What could be a apportionment basis for rates?

A

area

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23
Q

What could be a apportionment basis for canteen

A

number for employees

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24
Q

What is primary allocation & apportionment? P104

A
  • OH costs - collected into each cost centre
  • double check - costs centre totalls - total of the total column
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25
Why does the method of allocation and apportionment need to be checked regularly ? P104
* still valid * e.g. reorganisation of factory/ office departments = change in floor area * supervisor salary costs - two department share
26
What are service departments? P104
* Not see products as made e.g. canteen/ production office = service department * service department oh - approtioned - cost centres products pass through * all OH costs - captured in production costs centres * All overhead costs - unit costs of a product
27
What two stage approach is needed with service departments? P104
* Primary apportionment - all costs centres * Secondary apportionment - production cost centres
28
What are the two methods used to charge service costs to production departments? P105
* Direct apportionment * Step down method
29
What is direct apportionment? P105
* Provide services to production departments * not any other service departmnets
30
What is the step down method? P105
* Not only production deparment * other department * reciprocal servicing
31
What must you remember about the step down method? P107
* Same as direct apportionment * However - service to service apportioned 1st * Share of costs incorporated - other service department
32
Once overhead costs have been allocated and apportioned, what is the next step? P110
* Mechanism - costs units absorb overhead costs * number of ways - all with OAR
33
What is OAR? - P110
* budgeted value recovered * unit passing through production department
34
What must then take place once the OAR has been calcuilated ? P112
applied to actual activity during period
35
What is the primary way of calculating OAR? P111
Total budget cost centre overheads / budgeted activity
36
How is the activity within the OAR calculation usually measured? P111
* Direct labour hours * machine hours
37
How is direct labour overhead absorption rate calculated? P111
cost centre's overhead / no of direct labour hours worked in cost centre
38
How would you calculate the actual overheads absrobed dduring production? P112
Actual hours * absorption rate
39
How is the machine hour overhead absorption rate approached? P112
* same as direct labour * budgeted number of machine hours * not budgeted number of direct labour hours
40
What is an alternative to machine hour and direct labour? P113
percentage of the direct labour cost
41
When is the OAR set? P114
* Beginning of the accounting period * budgeted figures * reasonable approximation - costs incurred & activity levels achieved
42
How is the OAR via direct labour % calculated ? P113
Overhead costs / total direct labour costs * product direct labour costs
43
When would machine hours be most appropriate? P114
* Highly automated * production process constrained
44
How would a suitable absorption base be selected where both direct labour and machine hours are available ? P114
* greater number of hours OR * the most impact on production
45
What should ann organisation do once a suitable absorption rate has been selected ? P114
* Review regularly * e.g. increase automation = change to machine hours
46
What follows the application of OAR to actual activity? P115
* Entry into bookeeping system * problem - different figures to actual overheads incurred
47
How are differences between overheads absorbed and overheads incurred dealt with? P115
Adjustment for under / over absorbed overheads
48
What is under absorption of overheads? P115
actual overheads > overheads absorbed
49
What is an over abosrption of overheads ? P115
actual overheads < overheads absorbed
50
What is the calculation for under absorbed overheads? P115
Overheads absored ( actual activity * OAR) - overheads incurred = MINUS DIFFERENCE
51
What is the calculation for over absorbed overheads ? P115
Overheads absored ( actual activity * OAR) - overheads incurred = POSITIVE DIFFERENCE
52
What does uunder absorption mean for the statement of profit / loss ? P116
* not charged enough overheads * debited to P/L = decreases profit
53
What does over absorption mean for the statement of profit/ loss ? P116
* Too many charged overheads * credited to P/L = Increases profit
54
When can overabsorption effect? P116
* OAR - budgeted figures * overestiamated oar = uncompetative selling price
55
Why was activity based costings introduced? P117
* Absorping fixed costs with one basis = too simplistic * production methods & batch sizes impact development of production costs * new intergrated production methods = inappropriate machine hours/ direct labour hours
56
What does activity based costings do ? P117
* Breaks down indirect costs into costs pools - nature * e.g. production issues costs different to quality control procedures
57
What does each cost pool contain ? P117
* Cost drvier - drives costs & causes them to change
58
What are the 5 activity - based costing method steps ? P117
1. main indirect activityies - form cost pools 2. gather - relevnt costs into each cost pool 3. identify cost driver - each cost pool 4. calculate cost driver rate for eachh cost pool 5. charge indirect costs - use of cost driver rate
59
How do you calculate cost driver rate ? P117
cost pool / cost driver
60
Which departments would activity- based be appropriate for? P119
* quality control department * purchasing department * stores department
61
What do the bookkeepng entries for overheads include? P120
* entries - transfer cost of overheads to work in progress * entries for over/ under absorption of overheads
62
How is the production overhead account used and what entries are made? P120
* Control account * overheads transferrsed to work in progress * under/ over absorption of overheads - transferred to profit / loss
63
What is the double entry for production overheads charged to work in progress ? P120
Debit - work in progress Credit - profuction overheads account
64
What is the double entry for over-absorbed overheads transferred to the statement of profit/loss P120
Debit - production overheads accoiunt credit - statement P/L
65
What is the double entry for under absorbed overheads transffered to the statement of profit/ loss ? P120
Debit - statment P/L Credit - production overheads account
66
What is an alternative way to bookkeep for overheads? P121
* Single under/ over absorption account - different departmental differences into * balance - single transaction - profit/ loss - end of accoiuntiing period
67
What happens once the cost driver has been determined? Page 117
Rate per cost driver calculated Indirect costs > each product = use of the cost driver Products generating high levels of activity = higher level of those direct costs
68
What happens once the cost driver has been determined? P117
Rate per costs calculated = costs pools / cost driver Indirect costs > different products = use of the cost driver Products charged with highest level of activity = higher level of those direct costs

AAT - Management Accounting: costing (10 decks)

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