Calculating Unit Costs

Question 1

what is absorption costing

Answer 1

inventory valued at full production costs including variable and fixed elements production costs

Question 2

what is marginal costing

Answer 2

variable production cost only

Question 3

two ways valuing closing inventory

Answer 3

• marginal costing
• absorption costing

Question 4

Absorption costing: 3 steps assigning fixed production overheads

Answer 4

1. Allocation and apportionment
2. Reapportionment
3. Absorption

Question 5

what is allocation

Answer 5

charging whole cost items directly to a cost centre

Question 6

what is apportionment

Answer 6

process sharing cost items between cost centres

Question 7

what is reapportionment?

Answer 7

the redistribution of overheads from service centres to production cost centres

Question 8

what is the Overhead Absorption Rate (OAR)

Question 9

what is a blanket absorption rate?

Answer 9

uses the same absorption rate for all cost units irrespective of the department in which they were produced

Question 10

TRUE OR FALSE?
A single product firm does not need to apportion overhead to find a cost per unit

Answer 10

true

Question 11

how to calculate overhead absorbed

Answer 11

OAR x Actual Activity

Question 12

how to calculate over/under absorption

Answer 12

actual overheads incurred - overhead absorbed

Question 13

what is over absorption

Answer 13

absorbed > actual

Question 14

what is under absorption

Answer 14

absorbed < actual

Question 15

two types of costing:

Answer 15

• Specific order costing
• Continuous operation (process) costing

Question 16

specific order costing

Answer 16

where the work done by an organisation consists of separately identifiable jobs or batches

Question 17

continuous operation costing

Answer 17

where a series of similar products or services are produced as a result of a sequence of continuous operations or processes

Question 18

job costing

Answer 18

• is appropriate for specific one off jobs of relatively short period
• includes prime costs and absorbed overheads

Question 19

contract costing

Answer 19

• appropiate for specific one off jobs of relatively long duration
• contract costs include prime cost, allocated overheads and absorbed overheads

Question 20

batch costing

Answer 20

• appropriate for a group of identical cost units
• includes prime cost and absorbed overheads
• unit cost= total batch cost/ number of units in batch

Question 21

process costing

Answer 21

• appropiate if there is a continuous flow of operations which produces identical products
• includes prime costs and absorbed overheads
• when the output of one manufacturing process ‘flows’ into the next process (liquids)
• unit cost= total process cost/number of units produced