Methods of costing Flashcards
What is unit costing ? P167
- Cost incurred - production of one cost object
What is a cost object ? P167
- Unit of product, service, activity - costs ascertained
What to remember about unit costing principles and how unit costs are calculated ? P167
- Same principle - whatever method of costing used
- costs of production or output / number of costs units = unit cost
What are the four unit costs that can be calculated ? P167
- Prime costs
- Marginal costs
- Absorption costs
- Total costs
What does each of the four unit costs include and what are they ? P167
- Costs of production
*Direct costs
*Indirect costs ( fixed production overheads)
*Fixed non-production overheads
What is the prime costs of production ? P167
- Direct materials + direct labour
How to calculate the marginal costs of production ? P167
- Prime costs + variable production overheads
What is the absorption costs of production ? P167
Marginal costs + fixed production overheads
What is the total costs of production ? P168
Absorption costs + fixed non- production overheads
What is specific order costing ? P169
Customer order what they want - before made/ work is done
What are the costing methods used by bussinesses to collect costs, and to calculate the total costs for specific orders ? P169
- Job costing
- Batch costing
- Conjunction with absorption costing - recover costs of overheads
- selling price > recovery of overheads
What is job costing ? P170
- separately identified from other jobs
- job becomes costs unt - costs are charged
What is included within a job costing card and then what comes after this ? P171
- Each job - number to identify it
- each job - separate job costs record - each item - estimates
- Actual costs incurred compared with estimated costs
- Difference = variance
How are the estimated costs in job costings obtained ? P172
- Direct materials - inventory records & purchasing & procurement department
- Direct labour - payroll records
- Overheads - Pre-determined overhead absorption rate - direct labour hours
What is batch costing ? P172
- Identical items - produced together as batch
- Batch is cost unit - costs are charged
How is the total costs per unit under batch costing calculated ? P172
Total batch costs / number of units of output = total costs per unit
Why are batch numbers frequently used ? P172
- Identify Output of a particular time
- Slight production variations
What is an alternative to specific job costing? P175
- Continuous work
What is the continuous work method of costing ? P174
- both manufacturing and service industry continuous rather than separate jobs
- Specific job costing methods - those types of businesses
- service costing mehtod - bus company - continuous service for customer use- output
- unit costing method - manfacturer for customers - products for customer buy all time - output
What do service businesses use continuous work: service costing for ? P175
Establish - unit costs of the service provided
What are service businesses in the context of continuous work ? P175
Work done continuously - not separate jobs
What are examples of service businesses using service costing to establish a unit costs of external service ? P175
- e.g. costs per passenger mile - bus / train service
- costs per student hour at school/ college
What are examples of service businesses establishing a unit costs for internal services provided ? P175
Unit service costs - issuing an item from store to production
What are the features of service costing ? P175
- composite cost units
- low level of direct mmaterials - total costs
- intangible output - e.g. performance
What is the calculation of the costs per service unit in relation to service costing ? P175
- Total costs of providing the service for period / number of service units for the perid = costs per servoce unit
Once the costs per service unit within continuous workin, for external services, is known, what can be done ? P175
- Mark up applied
- amount charged to customer
What is continuous work in terms of unit costing? P176
- Businesses - continuously produce a single product
- costs objects are identical - same costs
- units measured = outputs- e.g. liquid, area, weight
How is the costs per unit under continuous work unit costing calculated ? P176
Total costs of production for the peruiiod / number of units for the period = costs per unit
Once the costs per unit, under continuous work: unit costing, is known what can be done ? P176
- Mark up costs
- amount charged to the customer
What are the two considerations for unit costing ?P176
- calculate number of units & value of work in progress at given time
- account for wastage - normal & abnormal wastage
What are part- goods or work in progress units ? P177
Items started but not yet completed
What methods of inventory can be used to calculate part-finished goods and work in progress units -P177
- FIFO
- AVCO
How do you take into account the degree of completeness of the work in progress ? P177
- equivalent unit calculations
How do you calculate equivalent units ? P177
Number of units in progress * percentage of ocmpleteness = equivalent units
What is the formula for calculating the costs per unit when taking the equivalent units into consideration ? P177
- Total costs of production / number of units of output + equivalent units in profress = cost per unit
What is the aspect of costing - where you don’t get out what you put in - called ? P178
Normal wastage
Any variations from normal wastage treated separately in bookkeeping as ? P179
- Abnnormal wastage
What can normal wastage that is sold be known as ? P179
- Scrap sales
How is the money received from scrap sales of normal wastage treated ? P179
- Reduction in total costs of production
What does the production account do ? P179
- Gathers costs of production (material, labour, and overheads)
- Records - normal and abnormal wastage
How is wastage recorded in the production account in monetary terms ? P179
- No money amount
- note of wastage against production
- costs of output (costs of normal wastage)
What is the purpose of accounting for normal wastage within production account ? P180
- Normal wastage absorbed - costs of output
e.g.total costs of input £1 per kg = £11,000 (total costs) / 11000 kg (output)
After normal wastage - costs of finished goods £1.10 per kg = £11,000 / 10,000 kg (original output less normal wastage ) - Total costs of finished goods / (total quantity of finished goods - normal wastage)
What is abnormal wastage ? P180
output is lower thanafter normal wastage
How is abnormal wastage accounted for in the production account ? P180
- Credited to production account
- same costs per unit - after normal wastage allowance in quantiy
When transferring amounts out to the abnormal wastage account, and finished goods account from the production account how is this valued ? P180
- Cost per unit - expected output after normal wastage
- debit finished goods - quantity of finished goods * Cost per unit ( after nw)
- Debit abnormal wastage - quantity of abnormal wastage * cost per unit (after nw)
Why is abnormal wastage debited to a separate expense account, and how is this accounted for at the end of the year ? P181
- not charged to production account
- statement of profit loss period costs
- not included in production costs carried over- value of closing inventory
What is the double entry for accounting for abnormal wastage at the end of the year ? P181
- Not charged to production
- debit - statement of profit/loss
- credit - abnormal wastage account
How is the revenue of scrap sales from normal wastage accounted for, from the production account ? P181
- credited - production account
How is the transfer of both finished goods and abnormal wastage valued ? P182
cost per unit of the expected output
What is the equation for the cost per unit of the expected output,where there is scrap value ? P182
Input costs - scrap value of normal wastage / expected output ( output put in - normal wastage)
How is the scrap value for abnormal wastage accounted for ? P182
- Debit abnormal waste account - value of abnormal wastage from production account
- Credit abnormal waste account - scrape sales revenue (reducs value of abnormal waste,debited to the bank)
- Debit statemenrt of profit loss - balance of abnormal wastage account ( end of financial year)
How is the scrap value in normal wastage accounted for ? P182
- Debit normal wastage account –scrap value of normal wastage
- Credit production account
- Credit - bank scrap value
