Full Costing

Question 1

Any costs or department associated with employees are…

Answer 1

• HR
• Training
• Cantine
• any other departments where employees are the consumer of the organisations resources

Question 2

Any costs allocated due to space are for…

Answer 2

• rent
• light and power
• cleaning
• painting

Question 3

Any costs associated with use of machines are…

Answer 3

• maintenance
• insurance
• depreciation
  Any other item where machines are consumer of organisation

Question 4

Activity based costing is…

Answer 4

Where you accumulate indirect resources for each of the activities of the area costed and then assign the costs to the products or service based on the activity

Question 5

Benefits of activity based costing…

Answer 5

• provides a more accurate costs for each unit of product or service
• improves price competitiveness
• provides managers with a better understanding of the business
• improves efficiency in operations

Question 6

Criticisms on Activity Based Costing…

Answer 6

• time consuming and costly, not easily implemented and understood
• not every business can benefit from it
• few benefits where products or services provided have similar output and processes
• not all costs can be identified easily with particular activities
• lack of information concerning costs can lead to random allocations
• identifying cost drivers may be difficult
• uses past costs and ignores opportunity costs

Question 7

Criticisms for traditional costing…

Answer 7

• based on historic costs
• the allocation of costs to products on either a labour or machine hour basis is too simplistic and does not reflect the actual costs incurred in the provision of specific goods and services
• traditional costing fails to recognise the demands made by a particular product on a company’s resources

Question 8

What’s the difference between operating departments and service departments?

Answer 8

• operating departments are units in an organisation where the central purposes of the organisation are carried out
• service departments support or assist operating departments

Question 9

Disadvantages of full costing…

Answer 9

• uses past costs which are often considered to be irrelevant as they have already been incurred
• it restricts its consideration of future costs to outlay costs, ignoring opportunity costs
• costs can be often allocated on a random basis

Question 10

Why do companies still use full costing?

Answer 10

• it provides useful info about long term relevant costs

- more complete measure of income and profit generated