Control systems Flashcards
Costing system is about making decisions and control for management in the business.
The goal is internal reporting
Variable costing system
Costing statement
Manufacturing costs plus
Non manufacturing cost that are directly traceable to product
( All this cost are actual cost and not budgeted costs)
Contribution margin ( NOT gross profit)
Less Fixed manufacturing cost plus Fixed non manufacturing costs
With a variable costing system the focus is on inventory valuation and therefore thegross profitis based only on revenue, lessvariablemanufacturing costs.
With CVP analysis the focus is on decision-making and therefore thecontribution marginis based on revenue, lessall variable costs.
Absorption costing system Aim
System that seek to allocate ALL of producing product. It is not concern with separating variable cost to non manufacturing costs.
We use Budgeted costs because the actual costs are not yet available at that point.
so
Costs includes
Budgeted inderect production costs
Variences at the end to adjust actual
Allocation include
Budgeted or normal
( cannot use actual)
Process
-System set at beginning of year using a predetermined rate
- The system absorb based on the actual items produced
- At end , we compare what the system absorbed on actual vs what is actual cost
-
What do we mean by capacity
Budgeted Capacity
- over next period
- usually units , hrs and include maintainance
Normal Capacity
Average expected production over number of periods
also include maintainance
Maximum Capacity
Most that could occure
Practical capacity ( ABC) most reasonably expected to produce
Variences
Looks at Volume and Expenditure
Two processes
Under absorb
- System recorded too little
- Actual cost was more that the budgeted cost
- Production was less than budgeted or normal capacity
Over Absorb
= System recorded too much
-Actual cost was less that the budgeted cost
-Production was more than budgeted or normal capacity
Differences variance = period costs
