D&C 1 Flashcards
- ADVANTAGES OF ABC
Improved decision making
Abc provides a more realistic estimate of costs and profits therefore decisions would be more accurate for if a product should continue to be manufactured or if a product is profitable
- ADVANTAGES OF ABC
Improved cost control/reduction in costs
Manager are able to understand how costs are being incurred and how improvements can be sought to reduce usage of cost drivers.
e.g prodcution efficiency
- ADVANTAGES OF ABC
Improved Pricing
Better costing info gives better pricing structures for products to improve their profitability, or make products more competitive.
- ADVANTAGES OF ABC
Diversity of overheads
ABC can be applied to all overhead costs, not just production overheads.
ABC may be more suitable than normal absorption costing in manufacturing businesses where overhead costs are larger than direct production costs.
what is a fixed cost
fixed costs remain fixed even when the output changes
as the cost increases the fixed cost per unit decreases
what is a stepped cost
a stepped cost remains fixed for a certain level of output and increases when a futher level of output is reached
what is a variable cost
variable costs rise of fall depending on the output
the variable cost per unit is always the same even if the output changes
what is a semi variable cost
a semi variable cost is part fixed and part variable. the fixed element will always remain the same, the variable part changes depending on the increase or decrease in activity
what is capital expenditure
capital expenditure is the purchase or improvement of non current assets
what is revenue expenditure
revenue expendicture is the purchase of goods to be resold
maintenance of existing earning capacity of non current assets
expenditure incurred in running the business
what is a profit centre
a business which incurrs cosys and generates income
what is a revenue centre
an area of business responsible for revenue/income only
what is an investment centre
an area which incurrs costs, generates income and are responsible for their own capital investment
what is marginal costing
marignal costing only measures the variable cost of units.
the fixed costs are subtracted in full from the profit during that period
what is absorption costing
absorption costing includes all costs in the production costs in a unit
