Management Accouting Flashcards
Fixed production cost in relation to marginal costing
Period cost- costs charged in full to the SOPL in the period they are incurred
fixed production costs in relation to absorption costing
product cost- charged to the individual product and matched against the sales revenue they generate
marginal costing
(incremental costing) the additional cost incurred in producing one additional unit of product
VARIABLE COSTS= MARGINAL COSTS so no fixed overheads
absorption costing
build up of a full product cost including direct costs and a proportion of overheads including fixed production overheads (per unit)
under absorption
amount absorbed< actual cost = under absorption
Marginal cost difference to absorption
marginal costing uses the contribution to work out total profit (total contribution less fixed overheads)
absorption costing finds the fixed overheads per unit and takes this off the selling price with all other costs to find profit per unit
inventory levels for marginal and absorption costing
increase in inventory= absorption gives higher profit
decrease in inventory= marginal gives higher profit
fixed budget
one that remains unchanged regardless of actual activity level
flexible budget
actual results can be monitored against realistic targets
shoes the allowed expenditure for the actual number of units produced and sold
preparing a flexible budget
original budget-fixed cost= variable cost -> /units = variable cost per unit
budget cost allowance (flex budget) = budgeted fixed cost + (units * variable cost per unit)
budget variance
flexed budget - actual cost
relevant cost on material
inventory stock? -> cost of purchase
replacement? -> replacement cost
used for other purposes?
= contribution(opportunity cost) OR NRV
relevant cost of labour
spare capacity? -> nil cost unless overtime
hire employees? -> cost of hiring
=lost contribution per hour plus direct labour rate per hour
relevant costs of overheads
only those overheads that vary as a direct result of a decision taken are relevant
relevant cost of NCA
replaced? -> replacement cost
asset sold? -> net cash flows from the use of asset
=NRV
