Chapter 1 - Revision of management accounting Flashcards
What kind of business is standard costing most suitable for?
- mass production of homogenous products
- repetitive assembly work
What is the main purposes of standard costs?
Control
Planning
Performance measurement
Inventory valuation
Accounting simplification
What is a standard cost based on?
Usage of material, labour and overheads
What are the four main types of standard?
Attainable
Basic
Current
Ideal
What is a fixed budget?
prepared before the beginning of a budget period for a single level of activity
What is a flexible budget?
prepared before the begining of a budget period. Prepared for a number of levels of activity and requires the analysis of costs between fixed and variable elements.
What are attainable standards?
Based upon efficient (but not perfect) operating conditions
What are basic standards?
Long-term standards which remain unchanged over a period of years.
What are current standards?
Based on current working conditions. Useful when current conditions are abnormal
What are ideal standards?
based upon perfect operating conditions
Aim of absorption costing?
determine the full production cost per unit.
The assumption underlying the absorption costing method is what?
that overhead expenditure is connected to the volume produced.
What is the OAR?
Production o/h / Activity level (this must be chosen)
What is the marginal cost?
The extra cost arising as a result of making and selling one more unit of a product or service
What is contribution?
Sales value - variable cost.
With marginal costing, contribution varies in what way?
in direct proportion to the volume of units sold.
What will happen to profit when extra contribution is earned?
Profit will increase as sales volume rises
what are some advantages and disadvantages of absorption costing?
- includes elements of fixed overheads in inventory values.
- more complex to operate
What are some advantages and disadvantages of marginal costing?
- contribution per unit is constant
- useful in decision-making
- fixed costs are a period cost and are charged in full to the period under consideration
- closing inventory not values
- fixed o/hs not shared out between units, but fully written off
