Costing

Question 1

Traditional absorption costing

OAR=

Answer 1

Budgeted overhead/ Budgeted normal activity (hours)

OAR = overhead absorption rate, one rate is used for all overheads

Question 2

What is Activity Based Costing?

Answer 2

Splitting into cost pools (order costs) and cost drivers (number of orders)

Question 3

Target Costing

Answer 3

Market driven approach starting with selling price and working backwards for a cost

Question 4

Life cycle costing

Answer 4

Tracing all costs and income over the entire life cycle of a product

Question 5

Throughput accounting

Answer 5

Used to assess performance of internal function (bottlenecks/ scarce resources)

Question 6

Theory of constraints

Answer 6

idea that there will always be a resource or bottleneck stopping growth

Question 7

Goldratt’s five focusing steps

Answer 7

Step 1: Identify bottleneck
Step 2: Maximise use of bottleneck
Step 3: Production schedule to determined by bottleneck
Step 4: How to overcome bottleneck
Step 5: Next bottleneck resource (always will have demand as one)

Question 8

Throughput contribution

Answer 8

revenue minus material purchases

Question 9

Throughput accounting ratio

Answer 9

Return per hour / cost per hour
Throughput contribution (revenue - material purchases) / conversion cost (labor + overhead)
If greater than 1, more income than cost
Rank bottlenecks and then create production plan based on TPAR

Question 10

Environmental accounting

Answer 10

focus on decision making around environmental issues

Question 11

Environmental cost classifications

Answer 11

Conventional - raw materials and energy
Potentially hidden - general overheads
Contingent - future costs i.e. decommissioning