Management Accounts: Costing Flashcards
What is allocation?
Where total overheads are charged to the relevant cost centres in full
What is Apportionment?
Sharing overheads across cost centres using a fair basis
What is reapportionment?
When all service cost centres are shared out between production cost centres
What is absorption?
when overheads are split into the cost units they relate to using a suitable basis
What is the equation or overhead absorption rate?
Production (budgeted) overhead/(budgeted) activity level
What is the equation for amount absorbed?
Actual production activity/overhead absorption rate
What is one advantage and one disadvantage of absorption costing?
A: Takes fixed costs into account unlike marginal costing. D: the nature of the cost behaviour is some what arbitrary/estimated
What 3 indirect cost make up overheads?
Materials, labour and expenses
What is a responsibility centre?
A function or a department of an organisation that is headed by a manager who is directly responsible for its performance
What is a flexed budget?
budgets designed to change as volume of activity changes
What is the formula for high-low costing?
High Cost - Low Cost / High Output - Low Output
What is marginal/variable costing?
When goods/services are priced based on only variable costs, not fixed costs are included
What is the equation for Contribution?
Sales Value - Variable Cost of Sales
What is the formula for Breakeven Sales Volume?
Total Fixed Cost/Selling Price -Variable Cost per Unit
What is the formula for Prime Costs?
Direct Materials + Direct Labour + Direct Expenses
What is the formula for Overhead costs?
Indirect Materials + Indirect Labour +Indirect Expenses
What is the formula for Minimum Inventory Level?
Reorder Level - (Average Usage x Average Lead Time)
What is the formula for reorder level?
(Max Inventory Usage x Max Lead Time) + Buffer Inventory
What is the formula for Maximum Inventory Level?
Reorder Level + Reorder Quantity - (Min Usage x Min Leadtime)
What is the formula for Average Inventory Level?
Minimum Inventory + 1/2 Reorder Quantity
What is a stepped cost?
A cost that increased with a certain activity level ie. if one manager is need per 30,000 units, then four are needed for 120,000 units
What is over-absorption?
When more overheads are absorbed than incurred
What is under-absorbtion?
When fewer overheads are absorbed than incurred
What is the formula for amount absorbed?
Actual production activity x OAR
What are some benefits of absorption costing? (3)
- Inventory valuation using absorption costing complies with IAS 2
- Takes fixed costs into account which must be covered
- Production cannot be separated from fixed costs as without them it would not occur in the first place
What are some drawbacks of absorption costing?
- Unit cost includes costs which are not relevant to marginal decision making
- The nature of cost behaviour is obscured
- The method of absorption is to some extent is arbitrary
