Management Accounting Lec 5 Flashcards
(24 cards)
Benefits of management accounting
provides managers with info that allows them to make plans, control activities, monitor outcomes and revise plans
What is cost
often seen as expenditure but there are three types historical costs versus replacement costs full cost versus marginal cost actual cost versus budgeted costs
product cost is
those costs that are attached to the products and therefore include inventory valuations it will include direct materials + direct labour + other direct expenses = prime costs, + indirect productions costs (overheads) = Product cost
purchases =
current year product costs
what are period costs
non manufacturing costs such as training advertising and invoice (debt) collection, period costs are not attached to the product are not included in the inventory (stock valuation), will be recorded as an expense in the current accounting period
total costs =
period cost + product cost
of period cost and product cost which may not be fully expenesed in the current year
100% of period costs are expensed, less than 100% product cost - as may not sell all
What is absorption costing
the value of inventory at the direct cost plus indirect production overhead, it is the method used to obtain the full cost of a product or service
what does a businesses production cost for its output equal
the absorption costs
product costing
cost of a group of finished products
job costing
one piece of work for a customer
batch costing
costing perproduction run
What are direct costs
cost of an object are those that are related to a given cost object and that can be traced to it in an economically feasible way
what are indirect costs
are related to the particular cost object but cannot be traced to it an economically feasible way
Steps of absorption costing
1 trace all the direct and indirect costs to cost centres
2 allocate and apportion overhead costs
3 absorption (attach all production costs to products)
What is allocation
where whole items of costs can be charged to a cost centre
what is apportionment
where overheads must be shared between more than one cost centre
what is the most appropriate basis for apportioning rent
floor space, department A has 25%, department B 50% and department C 25%, A gets 25% rent, B 50% rent, C 25% rent
what is the most appropriate basis for apportioning repairs
is the value of plant (how much each cost centre is worth)
what is the most appropriate basis for apportioning a service centre (canteen)
divide it up per employee, work out cost per employee and apportion to the cost centre based on that
overhead absorption
cost centre overhead/overhead base
what can you use the absorption cost for
used for the valuation of the inventory in the annual report and can be used as a basis for determining the price for the product
prime cost =
all direct product costs
can absorption costs be used for pricing
yes where large part of costs are direct costs
no if large parts of the costs are manufacturing overheads, or competitive marker or niche or premium product
