Session 5 - Methods of Costing Flashcards
What is the prime cost of production?
Direct materials + Direct Labour
How to work out marginal cost?
Prime cost + varibale production overheads
How to work out absorption cost?
Marginal cost + Fixed production overheads
How to work out total cost?
Absorption cost + Fixed Non- Production overheads
Fixed non production overheads include?
Admin, Selling and Distribution
What is job costing?
Used where the product of service is a “one off”
For example: Making one racing bike or preparing one clients accounts
What is batch costing?
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
What is service costing?
Method of costing for services eg: running a bus
What is unit costing?
Method of costing for continuous manufacturing processes
What are 3 features of service costing?
Low level of direct materials in relation to total costs
Intangible output
Use of composite units eg: per passenger/mile
What is the calculation for cost per service unit?
Total costs of providing service/number of service units
What is the calculation for cost per unit for unit costing?
Total costs of production/number of units for period
What is the calculation of equivilent units?
Number of units in progress x completeness (%)
What is the calculation for cost per unit for unit costing including equivalent units?
Total cost for production/(number of completed units + equivalent units)
What is abnormal wastage?
Any additional waste which aries from normal wastage.
Actual loss - normal loss
What is scrap sales?
Any normal wastage which can be sold is known as scrap sales, this is treated as a reduction in the total costs of production
How is normal wastage recorded?
Normal wastage is credited to the production account, no money amounts are recorded.
How is abnormal wastage recorded?
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
When recording waste in the production account, how do you work out the unit cost of the abnormal waste?
It is the same as the finished goods unit cost. This is worked out by the total cost - scrap value/expected output
What are the entries in the abnormal waste account?
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
How to find margin in excel?
20% Margin = Total cost/0.8*0.2
What are product costs?
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
What are period costs?
Indirect costs which cannot be directly assigned to products
How to calculate markup 80% markup?
Total cost/100 x 80
