BPP Q Bank Flashcards
What are types of costing?
P - process costing
A - absorption costing
M - marginal costing
Segmented cost
Conversion cost
Investigate
Complying with relevant laws and regs … which EP?
Professional behaviour
Segmented cost is…
The costs relating to a component of the business which generates revenue.
Staples when manufacturing chairs was treated as indirect
Explain was although could prob be identified with specific chair (making them direct) … the cost is insignificant and the expense of tracing does not usually justify the possible benefit from calculating more accurate direct costs.
Staples would therefore be treated as indirect to be included as part of OAR
(In the question the other multiple choice options were all more obviously Direct costs)
Need to look at graphs … BPP question bank chapter 2
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We classify short term costs into fixed, variable, step-fixed or semi-variable.
In the long run all costs are…
Variable
For EOQ calculations watch out for…
Eg being given Storage cost in months … instead of annual
Q bank Task 4.6
Indirect wages are ‘collected’ where, for what…?
Collected in the Overhead Control Account for subsequent absorption into WIP
Q bank 4.7
Maintenance dept employee wages debited to Operating OHs
General admin dept employee wages debited to Non-Operating OHs.
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Q bank 4.8
In a typical cost ledger, the double-entry for Direct Wages cost incurred is?
Dr WIP
Cr Wages control
Q bank 4.8
The direct costs of production (which includes direct wages) are Debited to WIP (Cr to Wages Control)
The full wages cost has been ‘collected’ in Wages Control before being analysed (split) into Direct and Indirect wages.
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Watch out for detail - what did I do re OT premium ?
Divided £15 by 3 to get a 30% OT premium amount !!!
Absorption cost … what to include?
Direct materials. Direct labour. Variable OHs Fixed Manufacturing OHs Fixed Admin, Selling & Distribution costs.
All except Fixed Admin, selling & distribution costs
Characteristics of Service costing..
Difficult to identify many attributable direct costs.
Many costs must be treated as indirect and shared over several cost units therefore:
High levels of indirect costs as a proportion of total costs.
Cost units are intangible (eg haircut)
Use of composite cost units (passenger-mile ; bed-night)
Full absorption cost includes?
Direct materials, labour, expenses.
Variable OHs
Fixed MANUFACTURING OHs
(Not fixed admin, selling and distribution costs)
Need to revise bookkeeping entries for costing.
Eg Issue to production of indirect materials from inventory…?
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Entry for Issue to production of indirect materials
Dr Production OH control account.
(it’s INDIRECT mat so will be absorbed via OAR)
(If it was DIRECT materials we would debit WIP)
Cr Materials control account.
Warehouse department costs seem to be operating or non-operating costs?
Operating
When calculating profit by the 2 costing methods.. what to remember
Remember to add back or take off over/under absorbed costs.
With marginal won’t need to as will not be absorbing any
When calculating margin of safety % do you do MoS/Break even or MoS/budgeted units
MoS / budgeted units
If you wish to make £x profit , how to calculate number of units?
Work out the contribution p/u.
Divide the desired profit by the contribution p/u
ADD that to the Break even units!!!! (Ie fixed costs/contribution p/u)
Or add the Fixed OHs and desired profit and divide that by CPU
For calculating contribution do you include variable selling costs
Yes
Profit volume ratio % = ?
Contribution / Selling price x 100
IRR is basically Internal rate of return… so if cost of borrowing is higher then DO NOT undertake project.
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When allocating/apportioning costs to production departments watch out for what trick?
Being given something in the cost ‘label’ that overrides the obvious way of apportioning in the info..
Eg. “Supervisor wage - dept A” as a label…
.. but then given info that hours are split between dept A and B.
Must pay attention to label and allocate whole amount to dept A, ignoring the red herring info given ..
Don’t be thrown by question about diff in profit between absorption & marginal
If given OI and CI you know the number of units.
And given the OAR for the fixed OHs you can work out the DIFF in profit..
(OI-CI)*OAR
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Most important investment criteria eg. Payback NPV IRR ?
NPV
