Costing Flashcards
What is the other term for the total direct costs of production / service?
Prime cost
What is a product cost?
Identified costs with goods produced or purchased for resale and are included in the value of inventory
What is absorption costing?
It is the method by which a share of total production overheads is added to the prime cost, in order to calculate the full production cost of a product/service per unit.
How do you reapportion service centre overheads?
Take the service centre which gives the most to other service centres and divide their cost between all other centres (production and service). The do the next and so on. Use ratios not %
How do you calculate the overhead absorption rate?
It is the production overhead / activity level
How do you calculate a cost card?
Direct materials/batch
+
Direct labour hours/batch
+
Machine hours/batch
How do you work out over/under absorption of overheads?
Say that £100,000 of Spooky production overheads were budgeted for and 50,000 work hours were budgeted for. That is £2 per direct labour hour.
Actual Spooky production overheads are £95,000 and 34,000 production hours are worked. Is this under or over absorption and how much?
£2 per direct labour hour x 34,000 hours is £68,000 which is the budget.
Actual costs are £95,000. Therefore £27,000 was under absorbed.
How do you work out over/under absorption of overheads when given budgeted overhead, actual labour hours and actual overheads, as well as how much overheads were over/under absorbed by?
Add the actual over heads to the over/under absorbed overheads bit and divide by the actual labour hours to give the budgeted overhead absorption rate. From this you can use the budgeted overheads amount to give the budgeted overheads amount.
How would you calculate the difference in marginal and absorption costing profit?
It = the change in stock in units x OAR per unit
What has Thailand got to do with absorption costing profit?
Stocks
Increase
Absorption (costing profit is)
More (than marginal costing profit)
The opposite is also true.
Useful for MCQs
What is contribution?
It is a fundamental concept in marginal costing. Contribution is an abbreviation of ‘contribution towards fixed costs and profit’. It is the difference between selling price and all variable costs (including non-production variable costs), usually expressed on a per unit basis.
What are factory overtime premium payments always classed as?
Factory overheads - unless the overtime is worked at the specific request of a customer or worked regularly in the normal course of operations
Should you include variable selling and distribution overheads in a marginal costing system inventory valuation?
NO!
True or false, closing inventories are valued at full production cost?
FALSE. They are valued at marginal production cost
How do you work out the difference of profit between absorption cost basis and marginal cost basis?
You take the amount of inventory left at year end and times that by the FIXED COSTS as that would normally be taken all off in one go under marginal costing but in absorptive costing it is carried into inventory. Therefore this year’s profits will be bigger with absorption costing but next years will be less (if stock is left over)
