Calculating Unit Costs Flashcards
what is absorption costing
inventory valued at full production costs including variable and fixed elements production costs
what is marginal costing
variable production cost only
two ways valuing closing inventory
- marginal costing
- absorption costing
Absorption costing: 3 steps assigning fixed production overheads
- Allocation and apportionment
- Reapportionment
- Absorption
what is allocation
charging whole cost items directly to a cost centre
what is apportionment
process sharing cost items between cost centres
what is reapportionment?
the redistribution of overheads from service centres to production cost centres
what is the Overhead Absorption Rate (OAR)
what is a blanket absorption rate?
uses the same absorption rate for all cost units irrespective of the department in which they were produced
TRUE OR FALSE?
A single product firm does not need to apportion overhead to find a cost per unit
true
how to calculate overhead absorbed
OAR x Actual Activity
how to calculate over/under absorption
actual overheads incurred - overhead absorbed
what is over absorption
absorbed > actual
what is under absorption
absorbed < actual
two types of costing:
- Specific order costing
- Continuous operation (process) costing
specific order costing
where the work done by an organisation consists of separately identifiable jobs or batches
continuous operation costing
where a series of similar products or services are produced as a result of a sequence of continuous operations or processes
job costing
- is appropriate for specific one off jobs of relatively short period
- includes prime costs and absorbed overheads
contract costing
- appropiate for specific one off jobs of relatively long duration
- contract costs include prime cost, allocated overheads and absorbed overheads
batch costing
- appropriate for a group of identical cost units
- includes prime cost and absorbed overheads
- unit cost= total batch cost/ number of units in batch
process costing
- 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