1 A Revision Of F2 Topics

Question 1

What is standard costing?

Answer 1

A standard cost for a product or service is a predetermined unit cost set under specified working conditions

Question 2

What is the main purposes of standard costs? (5)

Answer 2

Control, planning, performance measurement, inventory calculation and accounting simplification

Question 3

In terms of standard costs, what is the purpose of control?

Answer 3

The standard cost can be compared to the actual costs and any differences investigated

Question 4

In terms of standard costs, what is the purpose of planning?

Answer 4

Standard costing can help with budgeting

Question 5

In terms of standard costs, what is the purpose of performance measurement?

Answer 5

Any differences between the standard and the actual cost can be used as a basis for assessing the performance of cost centre managers.

Question 6

In terms of standard costs, what is the purpose of inventory valulation?

Answer 6

An alternative to methods such as LIFO and FIFO

Question 7

In terms of standard costs, what is the purpose of accounting simplification?

Answer 7

There is only one cost, the standard.

Question 8

What organisation is standard costing most suited to?

Answer 8

Mass production of homogenous (similar products) products and repetitive assembly work

Question 9

What organisations is standard costing not suited to?

Answer 9

That produce products that are not homogeneous or where the level of human intervention is high

Question 10

What are the four different types of standard?

Answer 10

Attainable standards
Basic standards
Current standards
Ideal standards

Question 11

What are attainable standards?

Answer 11

They are based upon efficient (but not perfect) operating conditions

Question 12

What will attainable standards include allowances for?

Answer 12

Normal material losses, realistic allowances for fatigue, machine breakdowns ect

Question 13

What is the most frequently encountered type of standard?

Answer 13

Attainable standards

Question 14

What do attainable standards do?

Answer 14

Motivate employees to work harder since they provide a realistic but challenging target

Question 15

What are basic standards?

Answer 15

Long term standards which remain unchanged over a period of years

Question 16

What is the sole use of basic standards?

Answer 16

Their sole use is to show trends over time for such items such as material prices, labour rates and efficiency and the effect of changing methods

Question 17

What can’t basic standards be used for?

Answer 17

To highlight current efficiency

Question 18

What can basic standards do to employees?

Answer 18

Demotivate employees, if over time, they become too easy to achieve and, as a result, employees may feel bored and unchallenged

Question 19

What is current working standards?

Answer 19

These are standards based on current working conditions

Question 20

What are current standards useful for?

Answer 20

When current conditions are abnormal and any other standard would provide meaningless information

Question 21

What are the disadvantages of current standards?

Answer 21

The disadvantage is that they do not attempt to motivate employees to improve upon current working conditions and, as a result, employees make unchallenged

Question 22

What are ideal standards and what does this mean?

Answer 22

Ideal standards are based upon perfect operating conditions. This means there is no wastage of scrap, no breakdowns, no idle time; In short, no inefficiencies

Question 23

What do Japanese company use ideal standards for?

Answer 23

In search for pinpointing areas where close examination may result in large cost saving.

Question 24

What is the effect on employees of ideal standards?

Answer 24

AN adverse motivational impact since employees may feel that the standard is impossible to achieve

Question 25

What do attainable standard set allowance for? (2)

Answer 25

Ideal time and wastage

Question 26

What is a fixed budget?

Answer 26

This is prepared before the beginning of a budget period for single level of activity

Question 27

What is a flexible budget?

Answer 27

This is also prepared before the beginning of a budget period. It is the prepared for a number of levels of activity and requires analysis of costs between fixed and variable elements.

Question 28

What is a flexed budget?

Answer 28

This is prepared at the end of the budget period, it provides a more meaningful estimate of costs and revenues and is based on the actual level of output

Question 29

What does budgetary control compare?

Answer 29

Actual results and expected results

Question 30

What is the difference called between budgetary control?

Answer 30

A variance

Question 31

What is a direct/prime cost?

Answer 31

Materials and labour

Question 32

What is an indirect/production overheads cost?

Answer 32

Factory rent, supervisor's salary, electricity, depreciation etc

Question 33

What is a nonproduction cost?

Answer 33

selling and distribution costs and admin costs

Question 34

Under absolution costing, how is this made up?

Answer 34

Production costs (direct, indirect costs)

Question 35

What is the aim of absorption costing?

Answer 35

To determine a full production cost per unit

Question 36

What is the prime cost?

Answer 36

All the direct costs

Question 37

What is the standard full production costs made up of (absorption costing)?

Answer 37

Variable and fixed production overheads

Question 38

What is the formula for overhead absorption rate?

Answer 38

Production overhead/activity level

Question 39

What is the formula for pre-determined overhead absorption rate?

Answer 39

Budgeted overhead/budgeted volume

Question 40

What does 'budgeted volume' mean in terms of the predetermined overhead absorption rate?

Answer 40

total units, direct labour hours, machine hours ect

Question 41

How do you calculate if a product has been over or under absorbed?

Answer 41

OAR X actual activity. The difference between this and the actual is how much has been over or under absorbed

Question 42

What is marginal costing?

Answer 42

The accounting system in which variable costs are charged to cost units and fixed costs of the period are written off in full against the aggregate contribution.

Question 43

What is the marginal cost?

Answer 43

The marginal cost is the extra cost arising as a result of making or selling one more unit of a product, or is the saving in cost as a result of making or selling one more unit

Question 44

What is contribution?

Answer 44

The difference between sales value and the variable costs of sales

Question 45

How can contribution be expressed?

Answer 45

Per unit or total

Question 46

What is contribution short for?

Answer 46

Contribution to fixed costs and profits

Question 47

What does contribution varies with?

Answer 47

Direct proportion to the volume of units sold

Question 48

What does marginal costing allow a firm to see?

Answer 48

How a firm's cash flow and profits are affected by changes in sales volumes.

Question 49

What are advantages of absorption costing? (3)

Answer 49

1. It includes an element of fixed overheads in inventory values, in accordance with IAS 2. 2. Analysing under/over absorption of overheads is a useful exercise in controlling costs of an organisation. 3. In small organisations, absorbing overheads into the cost of products is the best way of estimating job costs and products on jobs

Question 50

What are disadvantages of absorption costing? (2)

Answer 50

It is more complex to operate than marginal costing, and it does not provide any useful information in decision making

Question 51

What are advantages of marginal costing (5)

Answer 51

1. Contribution per unit is consistent. 2. There is no under or over absorption of overheads which means no adjustment needs to be made to the income statement. 3. Fixed costs are a period cost and are charged in full to the period under consideration. 4. Useful in decision making 5. Simple to operate

Question 52

What are the main disadvantages of marginal costing?

Answer 52

Closing inventory is not valued in accordance with IAS 2 principles, and that fixed production overheads are not shared out between units of production, but written off in full instead.