cost concepts, behaviour and terminology Flashcards
(20 cards)
what is the problem?
calculating the cost of a specific cost object
why does it matter?
- financial reporting
- pricing/output decisions
- assessing relative efficiency
- exercising control
what types of costing systems used to determine product costs?
unique output - JOB costing
- many different products are produced each period
- products are manufactured to order
- cost records must be maintained for each distinct product or job
identical output - PROCESS costing
- masses of similar products are produced
- products produced in the same manner and consume the same amount of direct costs and overheads
- average cost per unit
what is job-order costing?
typical job order cost applications;
- special-order printing
- building construction
also used in the service industry
- accountancy firms
- law firms
explain job-order costing
direct materials e.g. mirrors/lights/radio - traced directly to each job
direct labour e.g. salary of workers on the assembly line - traced directly to each job
manufacturing overhead (OH) e.g. salary of cleaners/maintenance workers - applied to each job using a predetermined rate
what is the sequence of events in a job-order costing system?
- charge direct material and direct labour costs to each job as work is performed
- apply overhead to each job using a pre-determined rate
how the direct material and labour measured?
direct material; materials requisition form
- how much material per job
- how much it cost
direct labour; time tickets
- how much time per job
- salary per hour
what is the overview of assigning overheads to products?
1) overheads are assigned to departments or cost centres
2) costs accumulated in cost cents are assigned to products
what is the process of assigning overheads to products?
- there are two types of cost centre in a manufacturing company: production cost centres and service cost centres
- expenses are allocated to those cost centres to which they obviously belong
- if expenses cannot be allocated, they are apportioned - that is, divided up on a fair and logical basis, so that each cost centre gets an appropriate share
- costs apportioned to service cost centres are re-apportioned to production cost centres
- total overhead costs of each production cost-centre are absorbed within products by means of absorption rates as they pass through the cost centres
explain stage 1: allocation and apportionment
- where a cost is directly attributable to a department, allocation can take place
- non-allocable cost, however, must be apportioned on some logical basis
- the basis of apportionment varies according to the cost item
what are examples of methods of apportionment of costs to cost centres?
rent of building - floor area
lighting - floor area
power for machines - number of machines
production supervisor’s salary - number of employees
canteen costs - number of employees
depreciation of machinery - value of machinery
what is stage 2: absorption
once costs have been allocated/apportioned to departments, they must then be charged out to units - using a fair and logical basis.
information need;
1. overhead cost for the period
2. productive capacity available in that period
total overhead costs must be charged to all units produced in proportion to the amount of productive capacity used up in making each unit
what is the pre-determined overhead rate and how is it worked out?
a set rate which, when applied to cost units passing through the cost centre, will absorb or “pick up” all the overheads attributable to that cost centre
rate = estimated OH costs for period/ estimated productive capacity for period
use different rates for each departments
what are the bases for calculating absorption rates
- machine hours
- direct labour hours
- direct wages
- direct materials
- prime cost
- no. of units
what are examples of absorptions rates?
direct labour hour rate
= estimated overheads for the year/estimated direct labour hours for the year
= rate per hour
direct materical percentage
= estimated overheads for the year/estimated direct material costs x100
= the percentage
what is the predetermined overhead rate and how is it applied?
the predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins
POHR = estimated total manufacturing overhead cost for the coming period/estimated total units in the allocation base for the upcoming period
Ideally, the allocation base is a cost driver that causes overhead
how is the manufacturing overhead applied?
overhead applied = POHR x actual activity
POHR - based on estimates, and determined before the period begins
actual activity - actual amount of the costs driver such as the units produced, direct labour hours, or machine hours incurred during the period
what is the need for a predetermined manufacturing overhead rate?
- using a predetermined rate makes is possible to estimate total job costs sooner
- actual overhead for the period is not known until the end of the period
what is the job-order costing process flow summary?
- materials used may be either direct or indirect
materials issued
- direct materials - job cost sheets
- indirect materials - manufacturing overhead account
an employee’s time may be either direct or indirect
employee time recorded
- direct labour - job cost sheets
- indirect labour - manufacturing overhead account
what is the document flow summary of job-order costing?
indirect labour (employee time) + other actual OH charges + indirect material (materials) = manufacturing overhead account = overhead applied = job cost sheet
