Chapter 4 - Other costing techniques Flashcards
What are the 2 main types of costing system?
- Specific order costing
- Continuous costing
What is job costing?
- Form of specific order costing
- Production made of individual jobs
- Job is the cost unit
What is batch costing?
- Form of specific order costing
- Suitable for batches of identical costs
- TC/batch units = cost per unit
What is product costing?
- Form of continuous costing
- Suitable when g/s are received from continuous orders
- Used for mass production
What is service costing?
- Form of continuous costing
- TC includes same cost as manufacturing but overheads may be bigger than direct costs
- TC/service units = cost per unit
What are joint products?
2+ products separated during processing, each have a high saleable value
What is an example of joint products?
Petrol and paraffin
What are by-products?
Outputs of value produced identically in manufacturing a main product
What is an example of a by-products?
Bark and sawdust
What are the main bases for apportionment of joint products?
- Physical measurement
- Market value
- Net realisable value
How are the proceeds from the sale by-products accounted for?
Either:
- Pure profit
- (Proceeds-selling costs) used to reduce cost of main products
What is throughput accounting?
Primary goal is to maximise throughput while maintaining/decreasing inventory and operating costs
What 3 concepts is througput accounting based on?
- Throughput
- Inventory
- Operating expenses
What is throughput a measure of?
Profit
What is the formula for throughput?
Sales revenue - direct material costs
What are the main assumptions of throughput?
- Only raw materials cost is variable
- Direct labour costs not variable in the short term
- Total of all other costs called total factory costs
What is the aim of throughput accounting?
Maximise measure of throughput contribution
What are the 2 key impacts of throughput accounting on the management accounting system?
- Inventory valuation
- Decision making
What is a bottleneck?
Activity which has a lower capacity than preceding activities, therefore limiting throughput
How is a bottleneck identified?
Machine that produces the least
How can bottleneck problems be resolved?
- Identify bottleneck
- Calc throughput contribution per unit for each product
- Calc throughput contribution per unit of bottleneck
- Rank products from high to low
- Allocate resources using ranking
What is the formula for the throughput accounting ratio (TPAR)?
Return per factory hour/cost per factory hour
What is the formula for return per factory hour
Throughput contribution/product’s time on bottleneck resource
What is the formula for cost per factory hour?
Total factory cost/total time on bottleneck resource
What does the return per factory hour show?
Value added by organisation
What does the cost per factory hour show?
Cost of operating factory in terms of overheads
What does the TPAR measure?
Return from product against factory running costs
What does a TPAR > 1 mean?
Return exceeds operating costs, product makes a profit
What does a TPAR < 1 mean?
Return is insufficient to cover operating costs, results in a loss
What are the criticisms of throughput accounting?
- Concentrates on short term
- Difficult to apply long term
Why are digital products more difficult to cost?
- MC can be 0
- No standard time/cost
- Drivers for overheads difficult to determine
- Timing of costs difficult to estimate
- Lifespan can vary
What are the benefits of digital costing systems?
- Real time info
- Access to wider resources
- Reduced operational costs
- Better understanding of costs
- More accurate costing
- Improved communication
- Faster decision making
- Improved cost control
How does throughput accounting value inventory?
At material cost
What is not a typical feature of digital costing?
Systems integrated with customer systems
