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Flashcards in Costing Deck (11)
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1

Traditional absorption costing
OAR=

Budgeted overhead/ Budgeted normal activity (hours)
OAR = overhead absorption rate, one rate is used for all overheads

2

What is Activity Based Costing?

Splitting into cost pools (order costs) and cost drivers (number of orders)

3

Target Costing

Market driven approach starting with selling price and working backwards for a cost

4

Life cycle costing

Tracing all costs and income over the entire life cycle of a product

5

Throughput accounting

Used to assess performance of internal function (bottlenecks/ scarce resources)

6

Theory of constraints

idea that there will always be a resource or bottleneck stopping growth

7

Goldratt's five focusing steps

Step 1: Identify bottleneck
Step 2: Maximise use of bottleneck
Step 3: Production schedule to determined by bottleneck
Step 4: How to overcome bottleneck
Step 5: Next bottleneck resource (always will have demand as one)

8

Throughput contribution

revenue minus material purchases

9

Throughput accounting ratio

Return per hour / cost per hour
Throughput contribution (revenue - material purchases) / conversion cost (labor + overhead)
If greater than 1, more income than cost
Rank bottlenecks and then create production plan based on TPAR

10

Environmental accounting

focus on decision making around environmental issues

11

Environmental cost classifications

Conventional - raw materials and energy
Potentially hidden - general overheads
Contingent - future costs i.e. decommissioning