Product Costing

Question 1

Product costing

Answer 1

Product costing is the process of finding out how much it takes to make one product.

Question 2

Job costing

Answer 2

Job costing is work carried out specifically at the request of a customer eg. Wedding dress

Question 3

4 reasons product costing

Answer 3

1. To get SP
2. To control costs
3. To value stock
4. To aid planning and decision making

Question 4

To get SP

Answer 4

The SP must reflect cost of producing the product along with an anticipated profit.

Question 5

To control costs

Answer 5

In order to control costs it’s necessary to compare budgets costs with actual costs

Question 6

To value stock

Answer 6

In order to complete final accounts @end of financial period, necessary to know value of OS and C.S.

Question 7

Prudence and Closing Stock Valuation

Answer 7

• when preparing accounts, caution should be exercised
• losses can be anticipated by gains cannot
• to ensure profits are not overstated and losses understated
• if C.S. overvalued , profits overstated
• therefore stocks valued at lower of cost or net realizable value.

Question 8

Incorrect valuation of stock affects

Answer 8

1. Financial statements of two years ie C.S. one year OS next year
2. Figures Cost of Sales, GP, NP
3. BS: CA , Working Capital
4. In Ratio Analysis: Stock Turnover , %markup on cost, GP %, NP %, current ratio

Question 9

Absorption

Answer 9

The method by which costs are charged to units of products in order to be recovered. OAR for each dept can be calculated using a suitable basis eg..

Question 10

OAR and basis

Answer 10

Overhead Absorption Rate
No of units produces
Labour hrs
Machine hrs

Question 11

Under/over absorption

Answer 11

In dept X, costs incurred were 5000 less than expected , therefore profits are 5000 greater than expected

Question 12

Apportionment

Answer 12

Where overheads cannot be specifically identified but are shared or divided between departments using an appropriate basis of apportionment.

Question 13

Allocation

Answer 13

Where OH costs can be specifically identified and charged to a particular dept or cost center. These overheads are allocated to that dept.

Question 14

Transfer service dept to prod dept

Answer 14

• service depts cannot recover costs as no production takes place in them
• they are secondary to prod depts
• as result, service dept. costs must be transferred to prod depts on an equitable basis eg. Machine hrs
• OH can only be recovered if included in costs of production

Question 15

Reapportionment

Answer 15

This is the term used where service dept. costs are reapportioned/ divided between production depts because overheads can only be recovered by being included in the cost of production.

Question 16

Why is OAR based on budgeted figures

Answer 16

• actual costs may not be known until the end of year
• businesses can not wait until then to decide cost of product
• they need to decide SP for rendering purposes

Question 17

explain, with examples, controllable and uncontrollable costs
Controllable

Answer 17

• can be controlled by the manager of a cost centre
• they will make the decision about the amount of cost
• can be held responsible for variances
• all VC are controllable

Question 18

controllable cost eg

Answer 18

commission to sales personnel

Question 19

uncontrollable costs

Answer 19

• manager of cost centre has no control

- can’t be held responsible for variances

Question 20

uncontrollable cost eg

Answer 20

rates to local authority

Question 21

outline the role of the management accountant in an organisation
(GCBCDC)

Answer 21

• Gathers info required to formulate plans
• records costs, providing details of cost of products and depts
• participates in creation and execution of budgets
• assists in control of operations by comparing actual costs w budgeted costs
• ensures relevant data is provided to managers on a timely basis, and is readily understandable
• carries out valuation of CS used in financial statements

Question 22

management accountant def

POCD

Answer 22

The management acct. is a key member of a business’ organisation team making a vital contribution to areas of planning, organising, controlling and decision making.

Question 23

outline the differences between marginal and absorption costing

Answer 23

• There is a difference in the profit figures as CS is valued differently
• Under marginal costing CS valued lower than under absorption
• When costing a product, marginal doesn’t include FC while absorption does
• therefore a share of FC is included in the value of stock under absorption and not included under marginal

Question 24

explain diff. between marginal and absorption - eg.

Answer 24

under absorption, CS is valued at 1/10th of production cost = …
under marginal, cs is valued at 1/10th of VC=
Difference is 400, therefore profit difference = ,,,

Question 25

which should be used absorption or marginal

Answer 25

absorption costing should be used as it agrees with standard accounting practice and concepts and matches costs with revenue.

Question 26

Outline differences between management and financial accounting : acronym

Answer 26

TRUFL

Time, Regulation , Users, Frequency

Question 27

time

Answer 27

• planning for future eg. SP and Prod. levels

- records past figures, profitability ratio analysis

Question 28

regulation

Answer 28

• own preference, not restricted by legislation

- governed and regulated by legislation and accounting standards

Question 29

eg of accounting standard

Answer 29

FRS

Financial Reporting Standards

Question 30

Users

Answer 30

• Internal focus:mangers, info to aid planning and decision making
• internal+external, info to stakeholders
  eg. creditors, shareholders, govt

Question 31

Frequency

Answer 31

• as often as manager requires

- yearly basis

Question 32

explain what is meant by a step fixed cost

Answer 32

costs fixed within a certain range of activity that change outside of that range

Question 33

eg of steep fixed cost

Answer 33

rent could be fixed up to certain level of prod.

• if prod. increases and results in rental of more factory space, rent would increase to a new level
• therefore fixed costs would increase in steps