Chapter 1 Flashcards

1
Q

Define cost object

A

Something you are trying to ascertain the cost of

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2
Q

Define cost centre

A

Somewhere such as a department, process or function where costs can be accumulated

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3
Q

Define cost unit

A

Product or service for which costs are determined

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4
Q

Define composite cost unit

A

Cost unit made up of two parts - most commonly it is a service where the unit of ‘production’ is hard to calculate and compare

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5
Q

Product costs =

A

Product costs = direct production costs + production overheads

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6
Q

How are product costs treated?

A

Treated as part of cost of sales and included in inventory valuation

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7
Q

Are period costs treated as part of inventory?

A

No, deducted as expense in P&L

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8
Q

Are VC controllable?

A

Yes controllable in short term

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9
Q

Are FC controllable?

A

Not controllable in short term but controllable in long term

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10
Q

OAR =

A

Budgeted overhead costs / budgeted level of activity

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11
Q

Calculation for working out under/over absorption

A

Actual overheads incurred - overheads absorbed = under/(over) absorption

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12
Q

Contribution per unit (CPU) =

A

Selling price - All unit variable costs

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13
Q

Total contributions =

A

CPU x number of units sold

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14
Q

Contributions and profits

Profit = ______________ - ______________

A

Total contributions - fixed costs

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15
Q

Total contributions _____ as volume rises

rises or falls?

A

rises

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16
Q

What is the difference in treatment between MC and TAC in the P&L?

A

MC:

Only variable production costs are included in the COS. Fixed production costs and non-production costs are included as expense line.

Opening
Variable production costs
Closing

TAC:

Production costs are included in the COS. Non-production are included as expense line. There will also be under/over absorption included in COS.

Opening
Variable production costs
Fixed production costs absorbed
Under/(over) absorbed production overhead
Closing

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17
Q

Profit reconciliation statement (MC and TAC) calculation:

A

Marginal costing profit
(Closing inv - Opening inv) x Fixed OAR
Absorption costing profit

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18
Q

If closing inventory is greater than opening inventory, the reported profit under absorption costing is [higher / lower] than marginal costing

A

higher

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19
Q

If closing inventory is lower than opening inventory, the reported profit under absorption costing is [higher / lower] than marginal costing

A

lower

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20
Q

If closing inventory is equal to opening inventory, the reported profit under absorption costing is [higher / lower] than marginal costing

A

Neither, it is equal

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21
Q

During the budgeting process, the limiting factor is identified. What is this known as?

A

The principal budget factor

22
Q

If the principal budget factor is sales, what budget should be prepared first?

A

Sales budget

23
Q

During first stages of budget process, what four things be formed / identified?

A
  • Long term objectives
  • Budget committee
  • Budget manual
  • Principal budget factor
24
Q

Calculation for budgeted production levels:

A

Sales budget
+ Closing inventory of finished goods
- Opening inventory of finished goods
= Faulty free production

+ Faulty production / wastage

= Total production

25
Q

Material usage budget =

A

Production budget x standard material usage per unit

26
Q

Material purchases budget =

A

Materials usage budget quantity
+ Closing inv of materials
- Opening inv of materials

@ Standard cost of materials

= Budgeted materials cost

27
Q

BEP =

A

FC / CPU

28
Q

MOS =

A

Budgeted output - Breakeven output

29
Q

MOS % =

A

(Budgeted output - Breakeven output)/Breakeven output x 100

30
Q

Sales volume for a target profit =

A

FC + Target profit / CPU

31
Q

Sales revenue for a target profit =

A

FC + Target profit / CS ratio

32
Q

CS ratio =

A

TC/TR

or

CPU / Selling price per unit

33
Q

BEP as sales revenue =

A

FC / CS ratio

34
Q

Using payback method, if payback period is greater than the target period, should you accept or reject proposal?

A

Reject

35
Q

Using payback method, if payback period is less than the target period, should you accept or reject proposal?

A

Accept

36
Q

Using ARR, if the ARR is greater than the target rate, should you accept or reject proposal?

A

accept

37
Q

Using ARR, if the ARR is less than the target rate, should you accept or reject proposal?

A

Reject

38
Q

Calculation for ARR initial

A

Average annual profit / initial investment x 100

39
Q

Calculation for ARR average

A

Average annual profit / average investment x 100

Average investment = 0.5(initial investment + final/scrap value)

40
Q

Wage payments for idle time of direct workers within a production department are classified as

A

Factory overhead

Idle time is treated as an overhead

41
Q

What are royalty payments classed as

Royalty payments being £1 per unit paid to licensor per sale made.

A

Direct variable costs,

Variable because as sales go up, royalty payments increase

42
Q

Overtime premium payments are classed as what type of cost

Part of prime costs, factory overheads, direct labour costs, admin costs?

A

Factory overheads

Always classed as this unless specific work at request of customer or if in the normal course of operations

43
Q

What is the term known for spreading common costs over cost centres based on the benefit received? (Absorption costing chapter)

Overhead…

A

Overhead apportionment

44
Q

Can variable overheads be under/over absorbed?

A

No only fixed overheads can

45
Q

“A process where indirect (overhead) costs are spread fairly between cost centres”

Is this allocation or absorption?

A

Absorption

46
Q

“The process by which overheads are charged directly to cost centres”

Is this allocation or absorption?

A

Allocation

47
Q

What is the reason for under/over absorbed overheads?

A

Because we are using a predetermined OAR based on budgeted overheads and budgeted level of activity

48
Q

what is the principle budget factor (limiting factor)?

A

It is a factor that will limit the activity of an organiation

49
Q

Closing inv _ Sales _ Opening inv = production (in units)

Fill in with correct symbol: + or -

A

Closing inv + Sales - Closing inv = production

50
Q
A