Chapter 3 Types of Costing System Flashcards
How do you calculate Contribution?
Contribution = Sales Price - All
Variable costs.
What is Marginal Costing?
It values each unit as a total of its variable costs.
What’s the difference between Marginal Costing & Absorption Costing?
Marginal Costing values units at a total of their variable costs whereas Absorption Costing values units as a total of their production costs.
What is the Absorption Cost?
The total of the PRODUCTION cost ( Both Variable and Fixed production costs ).
What is the Marginal Cost?
The total of the VARIABLE costs.
What are the advantages of using Absorption costing?
- It is allowed under accounting rules (This means the method can be used for both management and financial accounts)
- It includes all production costs when setting a selling price. (By knowing what it costs to make a unit it is easier to know what you need to see each unit for)
- It helps with cost control (it is easier to calculate over / under absorption costs)
What is Specific Order costing?
It is when a company sells specific custom products that cannot be costed the same. Eg. a company that builds different office blocks that are different in size and materials and therefore have to be costed separately.
What is Continuous Operation costing?
It is when a company produce lots of the same product that can be costed the same. Eg. a production line that produces millions of bottles of drink every day.
What is Job Costing?
Job costing is type of specific order costing where each job (product made) is different to each other and cannot be costed the same way.
What is Batch Costing?
Batch Costing is a type of specific order costing that each batch is different and cannot be cost the same way. However items in the batch are the same and can be costed the same.
Service Costing - What is Intangibility?
Output is in the form of performance rather than a tangible good.
Service Costing - What is Heterogeneity?
Nature and Stannard of service will vary due to the service being performed by humans.
Service Costing - What is Simultaneous Production & Consumption?
You cannot see a service before you consume it
Service Costing - What is Perishability?
You cannot store a service.
