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Accounting 2 > Costing > Flashcards

Costing Flashcards

1
Q

What is a cost

A

Item of expenditure. The number of resources sacrificed to achieve a particular objective

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2
Q

What are the three cost classifications

A

Decision making
Allocation to products
Behaviour

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3
Q

What comes under decision making

A

Relevant or irrelevant

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4
Q

What comes under allocation to products

A

Direct or indirect

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5
Q

What comes under behaviour

A

Variable, semi variable, fixed, step fixed

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6
Q

What is a relevant cost

A

Any cost affected by a decision e.g opportunity or future outlay. They have not yet been incurred

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7
Q

What is an opportunity cost

A

The value of the opportunity foregone to pursue an alternative course of action

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8
Q

What is a future outlay cost

A

A cost which will be incurred in the future to achieve an objective

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9
Q

What is an irrelevant cost

A

Not affected by a decision. They have been incurred. Includes historic, sunk and committed.

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10
Q

What is a historic cost

A

The original cost

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11
Q

What is a sunk cost

A

A past cost which cannot be recovered

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12
Q

What is a committed cost

A

Future, agreed cost

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13
Q

What is a direct cost

A

Can be attributed directly to the product e.g direct labour

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14
Q

What is an indirect cost

A

Cannot be directly attributed to the product and therefore should be shared e.g rent

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15
Q

What is cost behaviour

A

How a cost varies with activity

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16
Q

What are variable costs

A

Vary directly with the number of units e.g cost of making materials

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17
Q

What are fixed costs

A

remain the same whatever the level of output e.g rent

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18
Q

What are semi-variable costs

A

Fixed with variable elements e.g telephone bills

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19
Q

What are step-fixed costs

A

Remain fixed as output increases until output reaches a level where it must increase sharply e.g supervisor costs

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20
Q

What does CVP mean

A

Cost volume profitability

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21
Q

What is cost volume profitability

A

Assists the relationship between cost and volume or activity and profit

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22
Q

What is the break even point

A

Where revenue will exactly equal total cost so there will be no profit or loss

23
Q

Break even point equation

A

BEP = Fixed cost / (revenue - variable cost)

Also known as contribution per unit

24
Q

What is the margin of safety

A

How many sales can be lost before there is a loss in profit. Difference between profit and break even

25
Q

Margin of safety equation

A

(expected sales - break even sales) / expected sales x 100

26
Q

What are the uses of break even analysis

A
  • Working out how much to sell when starting a new business
  • creating annual budgets
  • Making changes to strategy
  • Answering ‘what if’ statements
27
Q

Limitations of break even analysis

A
  • Multiproduct businesses - sales of other products may affect sales of another, hard to assign fixed costs to production lines therefore lacks accuracy.

-Assumes costs stay constant, the model must keep changing where costs do not stay the same so hard to build strategy off. Lacks reliability

-Doesn’t account for demand, hard to control external factors so it may not break even as predicted

-Doesnt account for changes in sales price (sales)

28
Q

Usefulness of costing information

A
  • Benchmarking against similar activities/ products
  • Developing budgets and comparing outcomes to budgets
  • Assessing performance by comparing outcomes to budgets
  • Assessing performance by comparing to sales revenue
  • Informing pricing (cost + a margin)
  • Evaluating whether to enter a market
29
Q

Full cost

A

Amount of resources sacrificed to achieve a given objective, considers all resources sacrificed

30
Q

Relevant costing

A

Short term decision making

31
Q

Full costing

A

Long term decision making e.g ensuring prices cover all costs

32
Q

Job costing

A

Accumulation of costs to a distinct individual output (job) to determine the full cost

33
Q

Full cost equation

A

Full cost = direct cost + fair share or indirect cost

34
Q

What is another word for indirect cost

A

Overheads

35
Q

What was traditional costing

A

Low levels of indirect cost with most costs spent on employees
Direct labour intensive
Even spread of overheads across products

36
Q

What is the new order

A

Capital intensive
Machine intensive
High indirect costs
Volatile changes in consumer demand

37
Q

What is total life cycle costing

A

Calculates total cost over its entire life

38
Q

What are the steps of total life costing

A
  1. Pre-production phase (research and development, production set up, pre-production marketing)

2.Production phase (Manufacturing and marketing)

3.Post-production phase (after sales service)

39
Q

What did Kaizen costing do for total life costing

A

Focused on the pre-producing costing phase

40
Q

What is target costing

A

Selling price - target profit = target cost

41
Q

Process of target costing

A

Market research to determine what price the market will bear

Steps taken to ensure actual cost equals target cost

42
Q

What does ABC costing assume

A

Overheads increase and decrease due to activities

43
Q

What are cost drivers

A

Any factor which affects total costs

44
Q

What are cost pools

A

Relevant costs to a task, pooled together

45
Q

How does ABC allocate overheads

A

Reflects proportions

46
Q

ABC costing short run and long run variable costs

A

Short run variable costs vary with production volume (e.g sales commission)

Long run variable costs vary with level of activity (e.g marketing)

47
Q

What are the 4 quality costs

A

Prevention, appraisal, internal failure and external failure

48
Q

What are the 4 quality costs: Prevention

A

e.g staff training costs on quality issues

49
Q

What are the 4 quality costs: Appraisal

A

e.g costs associated with monitoring quality processes

50
Q

What are the 4 quality costs: Internal failure costs

A

Costs of substandard products or scraps

51
Q

What are the 4 quality costs: External failure costs

A

Failure costs after the product reaches the consumer e.g loss of reputation

52
Q

What does JIT manufacturing stand for and mean

A

Just in time for

Manufacturing begins only when necessary

Goods are created to meet demand

53
Q

JIT manufacturing 6 step process

A
  1. rearrangement of production process to 1 product

2.reduce set up time

3.Increase emphasis on total quality management to eliminate defective production

4.Production cell workers trained to multitask

5.Adoption of JIT purchasing techniques so delivery immediately precedes use

  1. Modification of management accounting performance measures and product costing systems to support JIT production systems.
54
Q
A

Accounting 2 (10 decks)

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