Costing and Pricing Flashcards
What is the difference between the purpose of financial accounting and the purpose of management accounting?
The purpose;
Financial accounts: Prepared for external stakeholders
Management accounts: Prepared for internal managers
What is a cost object?
Anything for which costs can be measured
An object that has a cost - how much does X cost?
What is a cost unit?
The measure by which costs are determined
How an organisation’s output is measured
What is the difference between a function and a department?
Functions are divisions within a business (e.g Audit)
Departments are divisions within a function (e.g CLR)
What is a composite cost unit?
A two part cost unit - where there are two elements by which the cost is measured
E.g cost per tonne per kilometre travelled
What is a direct cost?
A cost that can be allocated, in full, to the item being costed
What is prime cost?
The total direct cost = direct labour cpst + direct materal cost + direct expenses
Above are the three types of direct cost
What are indirect production costs?
Costs that cannot be fully allocated to the unit being costed
Overheads - a pool of costs that need to be allocated
What is a period cost?
Costs within a period of time
Usually deducted as an expense within the period
What is a product cost?
The cost of a finished product
Cost of goods sold
What is responsibility accounting?
Where revenue and costs are segregated into areas of personal responsibility and are used to assess performance
What is a responsibility centre?
A department or fucntion whose performance is the direct responsibility of a specific manager
What are the 3 methods of inventory valuation?
- FIFO
- LIFO
- Average Cost
What are the advantages and disadvantages of the FIFO method of inventory valuation?
Advantages:
* Logically represents what is likely to physically happen - as oldest inventory is likely to be used first
* Easy to understand
Disadvantages:
* Long winded calculations
* Assumes one price for a purchase of materials when there may be varying prices
* During periods of inflation, issue prices will lag behind market value
What are the advantages and disadvantages of the LIFO method of inventory valuation?
Advantages:
* Inventories issued at a price close to market value - keeps up with inflation
* Managers aware of current costs when making decisions
Disadvantages:
* Long winded calculations
* Often the opposite of what is actually happening - newest stock is rarely first out
* Assumes one price for a purchase of materials when there may be varying prices