WK 9: Absorption costing

Question 1

What are direct costs?

Answer 1

Costs directly associated with a product, such as material & labour costs

Question 2

What are indirect costs

Answer 2

costs not directly associated with product - rent, depreciation (overheads)

Question 3

What is full costing

Answer 3

takes into account both direct and indirect costs associated with the manufacturing of a product

Question 4

What is absorption costing?

Answer 4

management accounting technique where indirect manufacturing overheard costs are spread fairly across the range of products made by the business

Question 5

What is marginal costing

Answer 5

takes into account VC and ignores FC

Question 6

Overheard costs

Answer 6

indirect costs of a business that can’t be directly associated with a product

Question 7

What is an over recovery of overheads?

Answer 7

Occurs after an absorption rate has been applied throughout the year and products have been charged with more than the actual overhead incurred by year-end

Question 8

What is an under recovery of overheads?

Answer 8

Occurs after an absorption rate has been applied throughout the year and products have been charged with less than the actual overheard incurred by the year-end

Question 9

What are allocated costs

Answer 9

Indirect costs which are directly associate a manufacturing department, such as a production supervisor, working for one particular department

Question 10

What are apportioned costs ?

Answer 10

Indirect manufacturing costs which aren’t directly associated with a department and need to be shared on a fair basis (rent)

Question 11

What are re-apportioned costs?

Answer 11

indirect costs of a service department (such as a canteen or maintenance departments) which are shared between manufacturing departments on a fair basis