Costing Flashcards
What are the 2 main types of costing?
Absorption and marginal
Does MC have anything to do with FOH in the per unit cost calc?
Never
Does the AC reflect the FOH in the per unit cost calc?
Yes
How is the absorption rate calculated?
Bud FC/ Bud Units
What are the 4 categories production cost can be broken down into?
Materials
Labour
VOH
FOH
How can the difference in P/L between MC and AC be checked?
AR x Change in inventory
What is an example of VOH?
Supervisor costs
Are sales the same for MC and AC?
Yes
Which costing method gives a higher value of inventory?
AC
How is the AR worked out using labour cost per hour?
Labour cost per hour/ variable labour unit cost (decimal)
What are direct costs?
Materials and labour costs
What is a stepped fixed cost?
Fixed up until a certain point
What is the absorption rate always based off?
Budgeted info
How is the absorbed amount calculated?
Actual units produced x AR
How is prime cost worked out?
Materials + Labour cost per unit
What is prime cost?
total of all direct costs (materials and labour)
What is an example of a step cost?
Machine hire
What would be the most suitable for monitoring and controlling the costs incurred by a freight transport organisation?
Cost per tonne-kilometre
What are regarded as cost objects?
Operating theatre in a hospital
Branch of a high street bank
What is the amount of overtime premium paid to production line workers would normally classed as?
Factory overheads
What are wage payments for idle time of direct workers within a production department are classified as?
Factory overhead
What are indirect labour costs made up of?
Idle time costs and overhead premiums
What is true of direct costs?
- Can be traced in full to the product, service or department that is being costed
- Might be an indirect cost of a different cost object
- Expenditure on direct costs will probably vary every period.
What’s another name for indirect costs?
Overheads
What is the cumulative weighted average cost method?
Total costs/Total units = new cost
New cost x units sold = ans
Under FIFO, what will the inventory valuation be close to?
Replacement cost
Under LIFO, what value are inventories close to?
Current market value
What is a disadvantage of the weighted average method?
Resulting issue
price is rarely an actual price that has been paid and it may be calculated to several decimal places
What makes decision making difficult for both FIFO and LIFO?
Variations in prices
Assume LIFO, raw materials rising in price, inventories constant, what happens inventories and COS?
Higher COS
Lower inventory value
With all average price systems where it is required to keep prices up to date, the average price must be re-calculated?
Each time a purchase is made
What constitutionalises a valid reason for calculating overhead absorption rates?
To attribute overhead costs to cost units
What is known as spreading common costs over cost centres on the basis of benefit
received?
Overhead apportionment
How would the salary of the works manager be dealt with when calculating a fixed overhead absorption rate for the factory?
Allocated to the factory
How would the salary of the logistics manager be dealt with when calculating a fixed overhead absorption rate for the factory?
Apportioned to the factory
What is true of the determination of the overhead absorption rates?
- Costs can be allocated where it is possible to identify which department caused them
- Costs need to be apportioned where they are shared by more than one department.
- There is no need for a single product company to allocate and apportion overheads in order to
determine overhead cost per unit
What is true regarding absorption rates?
- They are usually determined in advance for each period.
- They are used to charge overheads to products.
How is a budgeted capacity calculated?
Calculate the budgeted overheads and the overhead absorption
rate
What does activity based costing involve?
Tracing resource consumption and costing final outputs
Why are JIT systems referred to as pull systems?
Because demand from a customer pulls
products through the production process.
What costing method is most appropriate for plumbing repairs?
Per job
What costing method is most appropriate for shoe manufacturing?
Per batch
Can the procedures used to calculate unit costs in manufacturing industries can equally be applied
to service industries?
Yes
What items used in costing batches are normally contained in a typical batch
cost?
Actual material cost
Absorbed manufacturing overheads
Are selling costs included in costing?
No
What is the calc for contribution?
Units x (Selling price - Variable cost)
Can absorption costing be the same/higher/lower compared to marginal costing?
Yes
If the number of units of finished goods inventory at the end of a period is greater than that at the
beginning, what will marginal costing inventory result in?
Less operating profit than the absorption costing method
When comparing the profits reported under marginal and absorption costing when the levels of
inventories increased what happens?
Absorption costing profits will be higher and closing inventory valuations higher than those under marginal costing
When comparing the profits reported under marginal and absorption costing when the levels of
inventories decreased what happens?
Absorption costing profits will be lower and closing inventory valuations higher than those under
marginal costing
What is true regarding mark up?
The percentage markup with full cost plus pricing will always be smaller than the percentage mark up with marginal cost-plus pricing.
What criteria should be fulfilled by transfer pricing?
- Encourage output at an organisation-wide profit-maximising level
- Enable the realistic measurement of divisional profit
What is a dual pricing system of transfer pricing?
The receiving division is charged with the standard variable cost of transfers made and the supplying division is credited with the market value
What is the formula for optimum transfer price?
External market price - cost savings with internal transfer
