11 - Full Costing Flashcards
What is full costing?
Concerned with all costs incurred in making a product, not just the variable costs.
What are direct costs?
Can be traced to specific cost objects; the cost can be measured for each particular unit.
Example of direct costs
Direct materials, direct labour, flour for bread, baker’s wages
What are indirect costs? (overheads)
Costs that are not directly accountable to a cost object; cannot be directly measured for each particular unit of output
Example of indirect cost
The rent of a garage premises would be an indirect cost of motor repair
What are the two Traditional Costing Systems?
Job cost system and process cost system
What is the job cost system?
Costs are assigned to each individual job; each job can be distinguished from all other jobs
What is the process cost system?
Allocating exactly the same cost to each of a large volume of homogeneous products.
Example dentists, lawyers, mechanics should all use process costing because each job they do is worth different values
Define under-applied overhead
Means that the assigned costs are less than the actual costs incurred
Define over-applied overhead
Means that the assigned costs are greater than the actual costs incurred
Define Activity-Based Costing ABC
Many overhead cost pools; a separate pool for each factor that causes costs to increase (e.g. cost driver)
Criticisms of ABC
Time-consuming and costly and difficult to identify cost drivers
Benefits are long-term and uncertain
Costs to develop are immediate and certain
The actual data generated is historical and may not be relevant for decision-making
