Chapter 4 - Other costing techniques Flashcards
What are the 2 main types of costing system?
- Specific order costing
- Continuous costing
What is job costing?
- Form of specific order costing
- Production made of individual jobs
- Job is the cost unit
What is batch costing?
- Form of specific order costing
- Suitable for batches of identical costs
- TC/batch units = cost per unit
What is product costing?
- Form of continuous costing
- Suitable when g/s are received from continuous orders
- Used for mass production
What is service costing?
- Form of continuous costing
- TC includes same cost as manufacturing but overheads may be bigger than direct costs
- TC/service units = cost per unit
What are joint products?
2+ products separated during processing, each have a high saleable value
What is an example of joint products?
Petrol and paraffin
What are by-products?
Outputs of value produced identically in manufacturing a main product
What is an example of a by-products?
Bark and sawdust
What are the main bases for apportionment of joint products?
- Physical measurement
- Market value
- Net realisable value
How are the proceeds from the sale by-products accounted for?
Either:
- Pure profit
- (Proceeds-selling costs) used to reduce cost of main products
What is throughput accounting?
Primary goal is to maximise throughput while maintaining/decreasing inventory and operating costs
What 3 concepts is througput accounting based on?
- Throughput
- Inventory
- Operating expenses
What is throughput a measure of?
Profit
What is the formula for throughput?
Sales revenue - direct material costs
What are the main assumptions of throughput?
- Only raw materials cost is variable
- Direct labour costs not variable in the short term
- Total of all other costs called total factory costs
What is the aim of throughput accounting?
Maximise measure of throughput contribution
What are the 2 key impacts of throughput accounting on the management accounting system?
- Inventory valuation
- Decision making
What is a bottleneck?
Activity which has a lower capacity than preceding activities, therefore limiting throughput
How is a bottleneck identified?
Machine that produces the least
How can bottleneck problems be resolved?
- Identify bottleneck
- Calc throughput contribution per unit for each product
- Calc throughput contribution per unit of bottleneck
- Rank products from high to low
- Allocate resources using ranking
What is the formula for the throughput accounting ratio (TPAR)?
Return per factory hour/cost per factory hour
What is the formula for return per factory hour
Throughput contribution/product’s time on bottleneck resource
What is the formula for cost per factory hour?
Total factory cost/total time on bottleneck resource
