Calculating unit cost Flashcards
What is a direct or indirect cost for staff pay?
Basic pay - direct
Overtime premium (only if busy period) - indirect
Overtime premium (bespoke service offered) - direct
Bonuses - indirect
Idle time - indirect
What are the steps to inventory valuation?
1) Materials recorded at purchase price
2) Cost of materials used in production
3) Goods sold
What are the acceptable inventory valuation techniques?
FIFO
LIFO
AVCO
Standard cost
What are the advantages and disadvantages of FIFO?
Logical, easy, near replacement cost
Cumbersome, difficult to compare varying prices, can lag
What are the advantages and disadvantages of LIFO?
Close to market value, aware of recent costs
Cumbersome, opposite of what is happening, hard, difficult to compare varying prices
What are the advantages and disadvantages of AVCO?
New average calculated when new delivery of materials
Easier for decision making, easier
Rarely actual price, lag prices
How do we calculate the period weighted average pricing?
(Cost of opening inventory + total cost of receipts in period)/(units in opening inventory + total units received in period)
What are the comparisons between the methods?
FIFO - lowest issuances, highest closing inventory, highest profit
LIFO - highest issuances, lowest closing inventory, lowest profit
Weighted average - middle for all
How do we calculate the gross profit?
Revenue (sales x selling price) - cost of sales
What are the 3 stages in determining the share of overhead to be attributed to a cost unit?
Overhead allocation & apportionment
Overhead re-apportionment
Overhead absorption
What can cost centres be split into?
Production centres and service centres
What is allocation?
Process by which the whole cost items are charged direct to a specific cost centres
How should overhead costs be shared out?
On a fair basis
Floor area
Cost/book value
Number of employees
Volume occupied
How is an overhead apportioned to cost centre calculated?
Total overhead cost x apportionment base value/total apportionment base value
How do we perform a re-apportionment?
1) re-apportion service cost centre with largest overhead
2) re-apportion other service cost centres based on extent of use
How do we calculate the predetermined overhead absorption rate?
Total budgeted production overhead cost/total budgeted activity level
What absorption base should be used and when?
Number of units produced - identical products
Number of labour hours worked - manual labour
Number of machine hours - automated work
Direct/total costs - data not readily available
When are blanket absorption rates used?
No major differences between nature of work in each production cost centre
How do we calculate over/under absorption?
(Actual activity level x predetermined OAR) - actual overhead
Negative = under
Positive = over
What is under/over absorption caused by?
Over - over-estimation of overhead costs in budget/ under-estimation of activity in budget
Under - under-estimation of overhead costs in budget/ over-estimation of activity in budget
What is job costing?
Each separately identifiable cost unit or job is of duration less than 1 year eg plumbing
Direct material charged with FIFO or LIFO
Direct labour charges from time records
Overhead costs absorbed into total costs using predetermined OAR
What is contract costing?
Each separate identifiable cost unit is of duration greater than 1 year eg building a hospital
What is batch costing?
Each separate identifiable cost unit would be a batch of identical items eg drawing pins
What is process costing?
Continuous flow of operations to produce a large number of identical products eg paint/oil production
