Lecture 5- Marginal Costing Flashcards
What is marginal costing?
The marginal cost of an item is the cost of producing one more that item.
What is total cost?
It is compromised of both the marginal cost of the item, plus a fair share of the absorbed fixed production overheads associated with that item
What is the profit equation?
Profit=income -expenses (costs)
How are direct costs identified?
Can be identified with a specific product or activity
What are indirect costs?
Cannot be directly identified with a specific cost unit
What do direct costs include?
-Direct materials
-Direct labour
-Direct expenses
Collectively known as the “prime cost”
What is the equation of prime cost?
Prime cost= Direct materials + Direct labour + Direct expenses
What are indirect costs said to be?
Like rent costs
What can indirect costs or overheads be sub-divided into? (2 things)
-Production overheads
-Other overheads (I.e non production)
