Lecture 3a and 3b

Question 1

What is the accounting equation?

Answer 1

assets = liabilities + owners equity

This equation represents the relationship between a company’s assets, liabilities, and equity.

Question 2

What is the relationship between debits and credits in accounting?

Answer 2

debits = credits

This fundamental principle ensures that the accounting equation remains balanced.

Question 3

What are direct costs?

Answer 3

Materials and labour that can be easily calculated per unit

Direct costs are directly attributable to the production of goods.

Question 4

What challenges are associated with overhead costs?

Answer 4

Overheads are not easy to decide how much should be allocated to each unit produced

Allocating overhead can be complex due to varying factors affecting production.

Question 5

What is absorption costing?

Answer 5

A method to spread the overheads over the units produced in the fairest way

This method includes all manufacturing costs in the cost of a product.

Question 6

What is overhead allocation?

Answer 6

When overheads are allocated to the departments that caused them

This process helps to identify which departments are responsible for incurred overhead costs.

Question 7

What is overhead apportionment?

Answer 7

When the remaining overheads are spread over the departments in the fairest way possible

This ensures that all departments share the overhead costs equitably.

Question 8

What does re-apportioning service centres involve?

Answer 8

Taking the total cost of the service centres and spreading those costs over the production departments

This helps in accurately assigning service costs to production.

Question 9

How is the overhead absorption rate calculated?

Answer 9

Overhead cost per labour hour/machine hour

This rate helps in determining how much overhead cost is allocated to each unit of production.