Lecture 2a and 2B Flashcards
(14 cards)
What is a T account?
A system to record each transaction in a T account format with debits on the left hand side and credits on the right hand side.
In a cash-only context, what does debit and credit represent?
Debit is money in and credit is money out.
What should be done for every new item in accounting?
Make a new account.
What is full/absorption costing?
A costing approach that takes into account all costs of production, made up of fixed costs and variable costs.
What are fixed costs?
Overheads that are absorbed and measured.
What are variable costs?
Direct costs that are measured and are accurate.
What is a benefit of full costing?
It helps with pricing and output decisions and assessing performance.
What is job costing used for?
To identify the full cost of a particular job by including the overheads and spreading the cost of production.
What is the method of job costing?
Divide the overheads by the number of units, then by budgeted hours, and then by machine hours.
How is the absorption rate calculated?
Absorption rate = total overheads / direct labour / machine hours.
What is a disadvantage of full costing?
It is difficult to identify the mode of costing and using historical costs can lead to poor decision making.
What is an alternative to full costing?
Marginal costing or contribution sales minus variable cost.
Fill in the blank: In a T account, debits are recorded on the _______.
left hand side.
True or False: Variable costs include overhead costs.
False.
