Marginal, absorption and activity based costing Flashcards
What are the two costing systems often used in management accounting ? P203
- Marginal costing
- absorptiohn costing
What does marginal costing do ? P203
- Helps - short term decision making
What does absorption costing calculate ? P203
- Calculate - inventory valuations and profit/loss financial statements
What does the use of eachh system depend on ? P203
- Information needs - business
- can we afford etc - marginal costing
- how much profit we made - absorption costing
What type of costs to absorption and marginal costing systems use ? P203
- Same product and period costs - behaviour difference
- product costs - part of manufactured product
- period costs - not part of manufactured product - statement P/L
What is the definition of marginal costing ? P203
- Cost - one extra unit of output
What classifications of costs are used to help with short-term decision making? P203
- behaviour classsifications - assist with short term
- Variable
- Fixed
- Semi variable ( fixed and variable)
- marginal - each extra unit of output
What is marginal costing the total of ? P203
- Variable product costs - direct materials, labour, expenses, variable production overheads
- Not fixedperiod costs - rent & factory
- decision making = marginal costs of unit = variable costs - producing on more unit
What does knowing the marginal costs help management with ? P203
- Management focus - each unit contribution
- selling price less (marginal/ variable product costs) = contribution
What can contribution be calculated on ? P204
- Per unit basis
- Batch of output
- whole business
What is the difference between sales revenue and variable cost usd for ? P204
- cover - fixed period costs
- remaining = profit
How can a business workout its profit from its operations, and what is the calculation for this ? P204
- Using:
- marginal statement
- total contribution
- fixed costs figures
- total contribution less fixed production costs = operating profit
In what order is contribution applied towards overheads from the marginal costing statement ? P204
- fixed production
- non production overheads
What is absorption costing ? P206
- Recovers - costs of business amoungst cost units
- What does it costs to make one unit of output?
What is the absorption costs of a unit of output made up of ? P206
Direct materials + direct labour + direct expenses + production overheads(fixed and variable) = absorption cost
What do production overheads usually comprise of ? P206
- Factory costs
- indirect materials
- indirect labour
- indirect expenses
Why must absorption costingg be used for financial statements ? P209
- IAS 2
- direct materials, labour, expenses , production overheads
- non production overheads - niether absorption / marginal - period costs
What is activity based costing ? P211
overheads to production - basis of activities
How does activity based costing work ? P211
- causes of overheads
- not total overheads for period
- costs drivers and not Overhead recovery methods
What are cost drivers ? P211
- Activities - causes costs to be incurred
- cost per unit of product - use of activities
What are costs pool? P214
- Group of overhead costs - same activity
What are the steps of applying activity based costing ? P215
1st - group togehte rcosts pool - same activity e.g. - purchasing costs of goods
2nd - identify cost driver - e.g. placing order costs
3rd - charge costs rate to production = use of activity= two POs required / two activities
