L6/7/8: Costing Flashcards
(9 cards)
What is process costing?
Calculating the full cost per unit by: Average total manufacturing costs over number of products sold
What are job costing systems?
Where costs are accumulated separately for each job
What is the approach for ABC?
Identify activities involved in production
Assign total costs involved for each activity
Determine cost drivers: so which of these activities directly affect cost of product
Calculate activity rate per unit:
So total cost of activity / total units of activity
Assign costs to each product
How do you calculate optimal pricing?
Pricing where MC=MR
1st) Find TC, TR and Total Profit
TC = FC + VC
TR = P * Q = Q(price formula)
Profit Function = TR - TC
2nd) FInd max profit where differentiated profit function = 0
Differentiate profit function treating Q as constant, set to 0, solve for Q
What are some problems with optimal pricing?
-Estimating the demand function is difficult
-Non price factors can influence demand
-Profit maximisation isnt always a firms main objective
What is the contribution margin?
Price - Variable Costs
What are joint costs?
Where costs are split based on volume of good produced as a % of total produced.
If a questions asks for the minium price charged for additional units to be produced, where do you find this minimal price?
Just the price that covers the incremental cost of additional production, in some cases simply the variable cost per unit.
How do you answer a question that asks for an omptimal production mix with a limiting factor?
Rank the options by contribution per unit/limiting factor per uni
For example if limiting factor is machine hours, ranking would be in contribution per hour of machine time, then allocate available hours in that order.
