Session 5 - Methods of Costing

Question 1

What is the prime cost of production?

Answer 1

Direct materials + Direct Labour

Question 2

How to work out marginal cost?

Answer 2

Prime cost + varibale production overheads

Question 3

How to work out absorption cost?

Answer 3

Marginal cost + Fixed production overheads

Question 4

How to work out total cost?

Answer 4

Absorption cost + Fixed Non- Production overheads

Question 5

Fixed non production overheads include?

Answer 5

Admin, Selling and Distribution

Question 6

What is job costing?

Answer 6

Used where the product of service is a “one off”

For example: Making one racing bike or preparing one clients accounts

Question 7

What is batch costing?

Answer 7

Used where the output consists of a number of identical items which are produced together as a batch.

For example: Baking a batch of loaves

Question 8

What is service costing?

Answer 8

Method of costing for services eg: running a bus

Question 9

What is unit costing?

Answer 9

Method of costing for continuous manufacturing processes

Question 10

What are 3 features of service costing?

Answer 10

Low level of direct materials in relation to total costs
Intangible output
Use of composite units eg: per passenger/mile

Question 11

What is the calculation for cost per service unit?

Answer 11

Total costs of providing service/number of service units

Question 12

What is the calculation for cost per unit for unit costing?

Answer 12

Total costs of production/number of units for period

Question 13

What is the calculation of equivilent units?

Answer 13

Number of units in progress x completeness (%)

Question 14

What is the calculation for cost per unit for unit costing including equivalent units?

Answer 14

Total cost for production/(number of completed units + equivalent units)

Question 15

What is abnormal wastage?

Answer 15

Any additional waste which aries from normal wastage.

Actual loss - normal loss

Question 16

What is scrap sales?

Answer 16

Any normal wastage which can be sold is known as scrap sales, this is treated as a reduction in the total costs of production

Question 17

How is normal wastage recorded?

Answer 17

Normal wastage is credited to the production account, no money amounts are recorded.

Question 18

How is abnormal wastage recorded?

Answer 18

Abnormal wastage is credited to the production account, however this time it is recorded as the same unit cost as the finished goods.

It is then debited to a separate abnormal wastage account.

At the end of the year it is then debited to the SPL (increase expenses) and credited out the abnormal wastage account

Question 19

When recording waste in the production account, how do you work out the unit cost of the abnormal waste?

Answer 19

It is the same as the finished goods unit cost. This is worked out by the total cost - scrap value/expected output

Question 20

What are the entries in the abnormal waste account?

Answer 20

Debit - production (value will be the same in the production account)
Credit - Bank (value will be how much waste is sold for given in the question)

Debit and Credit will likely be 2 different amounts

Question 21

How to find margin in excel?

Answer 21

20% Margin = Total cost/0.8*0.2

Question 22

What are product costs?

Answer 22

Direct costs incurred to make a product
Direct materials, direct labour and direct expenses and production overheads

Product costs are included in the value of closing inventory

Question 23

What are period costs?

Answer 23

Indirect costs which cannot be directly assigned to products