Lecture 2 Flashcards

1
Q

What is the equation for Total product cost?

A

Total product cost = Prime cost + Production overhead cost.

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2
Q

Average Cost Method (AVCO) equation?

A

Average Cost Method (AVCO) equation: AVCO = Total amount paid/Units received x units issued for production

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3
Q

Define allocate?

A

Allocate means to assign a whole item of cost, or of revenue, to a single cost unit, centre, account or time period.

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4
Q

Define Apportion?

A

Apportion means to spread costs over two or more cost units, centres, accounts or time periods. (It is referred to by some books as ‘indirect allocation’.)

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5
Q

Define absorb?

A

Absorb means to attach overhead costs to products or services.

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6
Q

Explain the five steps of Allocation, Apportionment and Absorption in Costing?

A

This process can be explained in the following steps:

Direct materials are allocated to products
Direct labour costs are allocated to products

Indirect material costs and indirect labour costs are:

allocated and apportioned to cost centres (many firms have two main types of cost centre – production cost and service cost centres)
Total indirect costs of service cost centres are:

apportioned over production cost centres
Total overhead costs of production cost centres are
absorbed into products

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7
Q

When a question says “using labour hours as allocation basis” what do you know you need to do?

A

when a question says “using labour hours as allocation basis” what do you know you need to use a blanket rate

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8
Q
A
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