Costing Flashcards
What are examples of a cost object?
A unit of product.
A unit of service.
A department function.
A project.
What is a cost unit?
It is a basic measure of a product or service in relation to which costs are determined.
What is a composite cost unit?
A composite unit is made up of two elements and is used when a single measure would be inappropriate.
What are the three types of directional costing ?
Direct costs.
Indirect costs.
Semi variable costs.
What is responsibility accounting?
It segregates revenue and costs into areas of personnel responsibility.
What differentiates controllable costs from uncontrollable costs?
Controllable costs are costs that can be influenced by managers decisions and actions.
How does apportioning work?
It allocates services centre costs to production centre costs through apportioning by the chunk which the production centre represents of the total amount.
How is the OAR (overhead absorption rate) calculated?
Production overhead/activity level
What are some examples of how activity level used in calculated overhead abortion rate is measured?
Per unit.
Per Labour hour.
Per machine hour.
% of direct labour cost.
% of direct materials cost.
% of prime cost.
How is predetermined OAR measured?
Budgeted overhead/budgeted activity level.
How is overhead absorbed calculated?
Actual activity x predetermined OAR
What are the four alternative approaches to costing?
Job costing.
Batch costing.
Contract costing.
Process (continuous operation) costing.
What is the formula for calculating the difference in marginal and absorption costing profit?
Change in stock in units x OAR per unit.
What does SIAM stand for ?
Stock
Increase
Absorption (costing profit is)
More (than marginal costing profit)
What are the advantage of absorption costing and marginal costing ?
Absorption:
- recognises that selling price must cover all costs.
- complied with IAS 2 inventories.
Marginal costing:
- highlights contribution so appropriate for decision making.
- fixed costs treated in accordance with their nature.
- profit depends on sales and efficiency not production levels.
what are the drawbacks of absorption and marginal costing?
Absorption:
- Profits can be manipulated by changing production levels.
- based on the assumption that overheads are volume related.
Marginal costing:
- Danger that contribution fails to cover fixed costs.
- Does not comply with IAS 2.
- Necessitates analysis of mixed costs between fixed and variable.
