costing goods and services Flashcards
cost=
it is the amount paid for the item of goods being supplied or the service being provided
outlay cost
the amount spent to acheieve an objective or acquire an asset
relevant vs irrevelant costs
RELEVANT- relate to the objectives f the business, a future cost, must vary with the decision
IRRELEVANT- historical costs can never be a relevant cost regarding a future desicion
cost behaviour=
costs incurred by a business could be classifyed in various ways. eg by relation of volume of activity
fixed costs:
remain the same regardless of sales
variable costs:
costs change based on your sales activities
break even point=
the point where total sales revenue equals total costs
fixed costs/sales revenue-variable costs
total costs=
fixed costs+ variable costs
contribution margin ratio=
the contribution from an activity expressed as a percentage of sales revenue
cm per unit=sales revenue- variable costs
margin of safety=
the extent to which the planned volume of outputs or sales lies about the the BEP
MOS(%)= (expected sales-BEP)/expected sales x 100
break even analysis)
(fixed cost + target profit)/selling price per unit - variable cost per unit
single product business
all the outputs are identical items
mass production
multi product business
where a business offers a distinct product/service
to determine costs youd have to look at direct and indirect costs
direct vs indirect costs
DIRECT: a cost that can be identified with specific cost units, they can be traced to a particular cost unit and measured
INDIRECT: all other elements of cost, could never be identifed with each particular cost unit
allocation basis and overhead absorption
1- determine an aloocation basis(hours,volume of output,machine hours)
2-establish the overhead absorption rate
3- the cost units(jobs) are shared with their share of overheads
