Lecture 14 Flashcards
(13 cards)
Why do costing?
Costing helps with:
Stock valuation
Pricing decision
Budgeting
Product mix decisions 
Types of costs
Fixed costs - unchanged by output
Variable costs – changed with output
Semi variable – mixed of fixed and variable
Step costs – increased in chunks at certain levels
Direct costs – directly traceable to a unit
Indirect costs – overheads 
Key costing techniques – absorption (full) costing
Includes both direct costs and allocated overheads
Overheads are shared per unit, labour hour, or machine hour
Full cost per unit = direct cost + overhead allocation
Key costing technique – marginal costing
Ignores fixed cost and it focus is on contribution
Contribution = selling price - variable cost
Used for
Special orders, make or buy decisions, product discontinuation
What’s the formula for full unit cost and absorption costing?
Direct cost + overhead allocation
How are overheads allocated and absorption costing?
Per unit, per labour hour, per machine hour
What does marginal costing ignore?
Fixed cost
What is contribution in marginal costing?
Selling price - variable cost
What type of costs change in steps at capacity thresholds?
Stepped (or semi fixed) costs
What are direct costs
Costs that are directly traceable to a specific unit of output
Why might one product be overcharged under absorption costing?
If overhead is allocated equally, but product uses fewer resources
What’s one limitation of traditional costing methods?
They might not reflect real cost drivers in modern businesses
