Chapter 4 Flashcards
The ABC costing technique gives better insight to cost drivers, resulting in better what?
Cost control
What kind of costing technique is particularly useful where overhead costs are a significant proportion of the total costs?
ABC costing
What kind of costing technique recognizes that not all overhead costs are related to production and sales volume?
ABC costing
What kind of costing technique can be applied to all overhead costs, not just production overheads?
ABC costing
What kind of costing technique can be used just as easily in service costing as in product costing?
ABC costing
With what kind of costing technique is it impossible to allocate all overhead costs to specific activities?
ABC costing
What are three advantages to ABC costing?
- Fairer allocation of overheads
- Enables focus on more profitable products
- Aids control
What are three disadvantages to ABC costing?
- Assumes all costs are variable in long term
- Time consuming and complex (cost benefit)
- Difficult to establish overhead costs and cost driver
What are the four components of cost analysis?
- Cost value
- Exchange value
- Use value
- Esteem value
Which of the four components of cost analysis is the cost incurred?
Cost value
Which of the four components of cost analysis is the amount customer are willing to pay?
Exchange value
Which of the four components of cost analysis is the ability of the product to perform its intended purpose?
Use value
Which of the four components of cost analysis is where the high esteem value products are associated with premium products?
Esteem value
What are the five problematic characteristics with the service industry in relation to target costing?
-Intangibility
-Inseparability
-Heterogeneity
-Perishability
No transfer of ownership
Which costing technique focuses on the short term and is more difficult to apply in the long term?
Throughput
In the longer term which costing technique may be more appropriate for measuring and controlling performance than throughput?
ABC costing
Throughput is a measure of what?
Profitability
What is the formula for throughput?
(Sales price) - (direct material cost)
What are the three throughput performance measures?
- Return per factory hour
- Cost per factory hour
- Throughput accounting ratio (TPAR)
How do the three throughput performance measures relate to one another?
TPAR = (Return per factory hour) ÷ (Cost per factory hour)
If TPAR > 1
Profit
if TPAR < 1
Loss
What are the three ways of improving TPAR?
- Increase sales price
- Reduce operating expenses
- Better efficiency and production
What is the formula for Return per factory hour
(Sales price - direct material cost) ÷ (Usage of bottleneck in factory hours)
What is the formula for Cost per factory hour
(Total factory costs) ÷ (Total bottleneck hours)
What is the formula for TPAR?
(Return per factory hour) ÷ (Cost per factory hour)
What are the three types of environmental costs?
- Conventional costs
- Potentially hidden
- Contingent
- Image and relationship
