Management Costing Flashcards
What is the Prime Cost?
All the direct costs that make a cost unit
Direct Materials + Direct Labour
What is a Revenue Centre?
A function, person, or item of equipment that only creates revenue
What is a Profit Centre?
A function, person or item of equipment that incurs costs as well as generates revenue.
What is Absorption Costing?
TBC
What is Activity Based Costing?
TBC
What is Marginal Costing?
TBC
How is the full cost per unit calculated (manufacturing)?
Prime cost per unit + portion of indirect production overheads
3 types of indirect cost?
Indirect Materials, Indirect Labour, and Indirect Expenses
Overheads (indirect costs) grouped by function?
Production overheads, administrative overheads, finance overheads, selling and distribution overheads
what is a Cost Unit?
a measurable item of a business’ products or services.
What are the 4 stages of Allocation and Apportionment Costing?
1 - Allocation, 2 - Apportionment, 3 - Reapportionment, 4 - Absorption
What is the purpose of Allocation and Apportionment Costing?
To allocate overhead costs to cost units.
First by allocating costs to activity levels, and then to the cost unit by way of OAR.
What is a responsibility centre?
A department, branch or function that one single manager is responsible for its performance.
These are made up of cost, revenue, profit, and investment centres.
What happens during Allocation?
A cost is fully allocated to a single cost centre
What happens during Apportionment?
A proportion of an overhead is charged to each responsibility centre that incurs part of the overhead.
What happens during Reapportionment?
Reapportionment is the process of removing all overheads from the service cost centres and splitting them on a suitable basis between the production cost centres.
Allocation Absorption VS. Activity Based Absorption?
What happens during Absorption? (overhead absorption)
The way overheads are allocated to cost units during production (output). Otherwise known as overhead recovery)
Overhead Absorption Rate (OAR)
Production Overhead
_________________
Activity Level
Budgeted OAR formula
budgeted overhead costs
____________________
budgeted activity level
Amount Absorbed formula
Actual production activity x OAR
What is the unit used to describe the value and quantity of Work In Progress?
Equivalent Whole Units (EU)
