Methods of costing Flashcards

1
Q

What is unit costing ? P167

A
  • Cost incurred - production of one cost object
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2
Q

What is a cost object ? P167

A
  • Unit of product, service, activity - costs ascertained
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3
Q

What to remember about unit costing principles and how unit costs are calculated ? P167

A
  • Same principle - whatever method of costing used
  • costs of production or output / number of costs units = unit cost
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4
Q

What are the four unit costs that can be calculated ? P167

A
  • Prime costs
  • Marginal costs
  • Absorption costs
  • Total costs
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5
Q

What does each of the four unit costs include and what are they ? P167

A
  • Costs of production
    *Direct costs
    *Indirect costs ( fixed production overheads)
    *Fixed non-production overheads
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6
Q

What is the prime costs of production ? P167

A
  • Direct materials + direct labour
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7
Q

How to calculate the marginal costs of production ? P167

A
  • Prime costs + variable production overheads
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8
Q

What is the absorption costs of production ? P167

A

Marginal costs + fixed production overheads

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9
Q

What is the total costs of production ? P168

A

Absorption costs + fixed non- production overheads

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10
Q

What is specific order costing ? P169

A

Customer order what they want - before made/ work is done

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11
Q

What are the costing methods used by bussinesses to collect costs, and to calculate the total costs for specific orders ? P169

A
  • Job costing
  • Batch costing
  • Conjunction with absorption costing - recover costs of overheads
  • selling price > recovery of overheads
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12
Q

What is job costing ? P170

A
  • separately identified from other jobs
  • job becomes costs unt - costs are charged
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13
Q

What is included within a job costing card and then what comes after this ? P171

A
  • Each job - number to identify it
  • each job - separate job costs record - each item - estimates
  • Actual costs incurred compared with estimated costs
  • Difference = variance
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14
Q

How are the estimated costs in job costings obtained ? P172

A
  • Direct materials - inventory records & purchasing & procurement department
  • Direct labour - payroll records
  • Overheads - Pre-determined overhead absorption rate - direct labour hours
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15
Q

What is batch costing ? P172

A
  • Identical items - produced together as batch
  • Batch is cost unit - costs are charged
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16
Q

How is the total costs per unit under batch costing calculated ? P172

A

Total batch costs / number of units of output = total costs per unit

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17
Q

Why are batch numbers frequently used ? P172

A
  • Identify Output of a particular time
  • Slight production variations
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18
Q

What is an alternative to specific job costing? P175

A
  • Continuous work
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19
Q

What is the continuous work method of costing ? P174

A
  • 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
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20
Q

What do service businesses use continuous work: service costing for ? P175

A

Establish - unit costs of the service provided

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21
Q

What are service businesses in the context of continuous work ? P175

A

Work done continuously - not separate jobs

22
Q

What are examples of service businesses using service costing to establish a unit costs of external service ? P175

A
  • e.g. costs per passenger mile - bus / train service
  • costs per student hour at school/ college
23
Q

What are examples of service businesses establishing a unit costs for internal services provided ? P175

A

Unit service costs - issuing an item from store to production

24
Q

What are the features of service costing ? P175

A
  • composite cost units
  • low level of direct mmaterials - total costs
  • intangible output - e.g. performance
25
Q

What is the calculation of the costs per service unit in relation to service costing ? P175

A
  • Total costs of providing the service for period / number of service units for the perid = costs per servoce unit
26
Q

Once the costs per service unit within continuous workin, for external services, is known, what can be done ? P175

A
  • Mark up applied
  • amount charged to customer
27
Q

What is continuous work in terms of unit costing? P176

A
  • Businesses - continuously produce a single product
  • costs objects are identical - same costs
  • units measured = outputs- e.g. liquid, area, weight
28
Q

How is the costs per unit under continuous work unit costing calculated ? P176

A

Total costs of production for the peruiiod / number of units for the period = costs per unit

29
Q

Once the costs per unit, under continuous work: unit costing, is known what can be done ? P176

A
  • Mark up costs
  • amount charged to the customer
30
Q

What are the two considerations for unit costing ?P176

A
  • calculate number of units & value of work in progress at given time
  • account for wastage - normal & abnormal wastage
31
Q

What are part- goods or work in progress units ? P177

A

Items started but not yet completed

32
Q

What methods of inventory can be used to calculate part-finished goods and work in progress units -P177

A
  • FIFO
  • AVCO
33
Q

How do you take into account the degree of completeness of the work in progress ? P177

A
  • equivalent unit calculations
34
Q

How do you calculate equivalent units ? P177

A

Number of units in progress * percentage of ocmpleteness = equivalent units

35
Q

What is the formula for calculating the costs per unit when taking the equivalent units into consideration ? P177

A
  • Total costs of production / number of units of output + equivalent units in profress = cost per unit
36
Q

What is the aspect of costing - where you don’t get out what you put in - called ? P178

A

Normal wastage

37
Q

Any variations from normal wastage treated separately in bookkeeping as ? P179

A
  • Abnnormal wastage
38
Q

What can normal wastage that is sold be known as ? P179

A
  • Scrap sales
39
Q

How is the money received from scrap sales of normal wastage treated ? P179

A
  • Reduction in total costs of production
40
Q

What does the production account do ? P179

A
  • Gathers costs of production (material, labour, and overheads)
  • Records - normal and abnormal wastage
41
Q

How is wastage recorded in the production account in monetary terms ? P179

A
  • No money amount
  • note of wastage against production
  • costs of output (costs of normal wastage)
42
Q

What is the purpose of accounting for normal wastage within production account ? P180

A
  • 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)
43
Q

What is abnormal wastage ? P180

A

output is lower thanafter normal wastage

44
Q

How is abnormal wastage accounted for in the production account ? P180

A
  • Credited to production account
  • same costs per unit - after normal wastage allowance in quantiy
45
Q

When transferring amounts out to the abnormal wastage account, and finished goods account from the production account how is this valued ? P180

A
  • 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)
46
Q

Why is abnormal wastage debited to a separate expense account, and how is this accounted for at the end of the year ? P181

A
  • not charged to production account
  • statement of profit loss period costs
  • not included in production costs carried over- value of closing inventory
47
Q

What is the double entry for accounting for abnormal wastage at the end of the year ? P181

A
  • Not charged to production
  • debit - statement of profit/loss
  • credit - abnormal wastage account
48
Q

How is the revenue of scrap sales from normal wastage accounted for, from the production account ? P181

A
  • credited - production account
49
Q

How is the transfer of both finished goods and abnormal wastage valued ? P182

A

cost per unit of the expected output

50
Q

What is the equation for the cost per unit of the expected output,where there is scrap value ? P182

A

Input costs - scrap value of normal wastage / expected output ( output put in - normal wastage)

51
Q

How is the scrap value for abnormal wastage accounted for ? P182

A
  • 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)
52
Q

How is the scrap value in normal wastage accounted for ? P182

A
  • Debit normal wastage account –scrap value of normal wastage
  • Credit production account
  • Credit - bank scrap value