Management Accounting 1 Flashcards
Normal costing
based on expected costs and expected volumes (uses budgeted/predetermined allocation rate)
Actual costing
During the year, costs and volumes will vary (uses actual allocation rate)
Proration methods of under absoption
- Proration based on overheads already allocated
- Proration based on year-end values
- Proration directly to cost of goods sold
Weighted average method
NO distinction between opening WIP and production in the current month
- Just uses completed and transferred out + wip end
FIFO
Separate the work and materials costs of opening WIP from the current months cost
- just uses W-i-p opening + started and completed + w-i-p closing
Stand-alone method
divide the common costs in proportion to what individual users would pay
Incremental method
choose a main user, allocate its stand-alone costs, and allocate the reminder to the other users
Overall gross profit margin
Total profit / total sales value
Absorption costing and inflating profits
!!! Absorption costing can be used to inflate profits (short run) through stock build-up
Variable cost
variable manufacturing cost
Absorption cost
variable manufacturing cost + fixed manufacturing cost
Flex Budget
Budgeted prices * Actual quantity
Efficiency variance
= (budgeted quantity for actual volume - actual quantity) * budgeted price
Price variance
= price variance + efficiency variance
Yield Variance
(Budgeted total quantity of inputs for actual volume – actual total quantity of inputs) * budgeted share in input mix * budgeted price per input unit
