Revision Notes Flashcards
Absorption costing - method:
Method used to obtain the full cost of a product or service;
- trace all direct/indirect costs to cost centres
- allocate and apportion production overheads
- absorb the costs into products
product cost:
inventory & cost of sales (manufacture)
period cost:
admin expense & distribution cost
When can’t absorption costing be used for pricing
- when only a small part of costs are direct costs
- when competitive market or niche product
elastic demand
if a change in price leads to a more than proportionate change in quantity demanded
inelastic demand
if a change in price leads to a less than proportionate change in quantity demanded
What types of products are usually inelastic demand
premium/luxury products
Marginal cost
the cost added by producing one additional unit of a product or service
Variable cost
a cost that varies with the level of output
Fixed cost
does not change with output
Contribution =
sales price - variable cost
payback period
length of time it takes for an initial investment to be repaid out of the net cash inflows from a project
Define asset
a resource that is controlled by an entity as a result of a previous transaction which is expected to bring economic benefits
What 2 categories are there for assets
- Non-current (more than 12 months)
- current (less than 12 months)
Define an expense
A period cost, they have no future economic benefit
