Revision and Key Terms Flashcards
Key Stages in a management accounting system
- basic costing
- budgeting
- break even analysis; costing for multiple products
- capital budgeting
- costs for decision making; profit management
- performance management
Primary function of costing systems?
- valuation of inventory and the measurement of the cost of goods sold for financial reporting
- estimation of the costs of activities, products, services, and customers. for pricing decisions and profitability analysis
- to provide feedback to managers about process efficiency
Full absorption costing
- What is it?
- What is the aim?
Is the traditional long run method where all (fixed and variable / direct and indirect) costs of production are charged to cost centres and then to products and serviced
the aim is to calculate stock values for profit analysis. Also used to determine price
marginal (variable) costing
- What is it?
- What is the aim?
its a short run method where variable costs are charged to products or services and fixed costs are considered period costs and are treated as expenses in the period in which they are incurred
the aim is to help with decision making
activity-based costing
- What is it?
- What is the aim?
its an alternative method where cost pools are used to accumulate the costs of significant processes and activities and then assigns costs from cost pools tl products or services using cost drivers which measure the product or services demand for activities
the aim is to identify reasons why overheads are incurred for a certain activity
Standard costing
- What is it?
- What is the aim?
its a system designed to estimate the expected cost of a unit of product or service under efficient working conditions. Standards are used to plan and then can be compared with actual results to provide control and performance evaluation information through the creation of variances.
the aim is to calculate costs in advance of production. It allows for comparison of budget versus actual cost.
Cost unit (object)
a quantitative unit of product or service in relation to which costs are associated
Cost centre
a production or service location, function or item of equipment whose costs may be attributed to unit costs
Prime cost
the expenditures directly related to creating finished products
product costs
Directly related to production output e.g. factory overheads
period costs
those costs that are not directly tied to production - selling and admin
variable costs
costs that vary with changes of activity in relation to the cost object to which they relate
fixed costs
costs that accrue with the passage of time and are not affected by changes in the activity level, known as period costs
stepped costs
fixed up to a boundary of activity then increase or decrease when a threshold is met
semi-variable costs
a cost which contains a fixed and a variable element
