Summary Flashcards
What is a cost object?
Anything that needs a separate measurement of costs
What is a cost pool?
A grouping of individual cost items
Where is job-costing used?
Distinct units of a product/service
Where is process-costing used?
Masses of identical units of a product/service
What is the FIFO method?
When the first items added to the inventory are the first ones to be sold
Advantages of variable costing
Provides more useful information for decision making
Removes the effect of inventory changes from profit figures
Avoids fixed overheads being capitalised in unsalable inventories
Advantages of absorption costing
It does not understate the importance of fixed costs
It includes all variable hand fixed costs associated with production: helpful for decision making
Consistent with external reporting
What is a CVP analysis?
It examines the behaviours of total revenues, total costs and operating profit as changes occur in the output level, selling price, variable cost or fixed costs
What are the CVP assumptions?
- Total costs can be divided into fixed and variable costs with respect to the output level
- The behaviour of total cost and total revenues is linear in relation to output level
- The unit selling price, unit variable cost and fixed costs are known and are constant
- The analysis either covers a single product or assumes that the proportion when multiple products are sold will remain constant as the level of total units sold change
- All revenues and costs can be added and compared without taking into account the time value of money
- Changes in the level of revenues and costs arise only because of changes in the number of units produced and sold. The number of output units is the only revenue and cost driver.
What is the break even formula?
Fixed costs/UCM
What is the contribution margin formula?
Sales - variable costs
What is the formula for operating profit?
UCM - fixed costs/revenue - total costs
What is the formula for opening work in progress?
Value of opening work in progress/cost per equivalant unit
What is the formula for work done in current period?
Total costs added in the current period/cost per equivalent unit
What is the formula for variable manufacturing costs?
Variable manufacturing cost per unit x units sold
