Product Costing

Question 1

Product costing (purpose + result)

Answer 1

1) - Planning : production program, procurement/pricing decisions
- Control : cost control, performance review
- Documentation : inventory valuation
2) Result : we distinguish between
- Manufacturing costs : material + production costs
- Total costs : manufacturing cost + R&D + administrative + selling/shipping costs

Question 2

Classification of cost objects

Answer 2

We can classify costs objects by :
- Production stage : final/intermediate products
- Purpose : to be sold/to be used by the company itself
- Production-related connection : non-connected or joint/byproducts (e.g.: hydrogen/oxygen)
- Type of good : tangible/intangible goods

Question 3

Costing methods

Answer 3

1) Job costing : unit costs = job costs/order volume (used for individual and batch production)
2) Large quantities/homogenous products : unit costs = (sum of costs per production department)/production quantity
3) For tangible goods : Change in inventory value = manufacturing costs - cost of goods sold

Question 4

Types of overhead rates

Answer 4

• Material : overhead rate on material costs, cost rate per unit
• Manufacturing : cost rate per hour/unit, overhead rate on wages
• Administration : cost rate per hour/unit, overhead rate on direct labour costs
• Selling and shipping : overhead rate on direct labour costs/ on manufacturing
  -> You try and break down overhead costs by their cost center

Question 5

Machine-hour costing

Answer 5

• We break down machine-related overheads by machine and allocation, according to machine usage
• Machine-hour rate = Machine-related overhead ÷ Annual machine time (in hours)
• Machine-related overhead = (Depreciation + imputed interest + maintenance + room utilization + electricity + other operating costs)

Question 6

Times and forms of job costing

Answer 6

1) Normal/preliminary : from the start of the accounting period until job completion
2) Interim : directly after job completion, cost and profit control
3) Actual/post : at the end of accounting period, inventory valuation and profit control

Question 7

Time-dependent overhead rates

Answer 7

1) Actual : actual OVCs/ actual production time (hours)
- Actual/post costing
2) Normal : average OVCs/ average production time (hours)
- Interim costing
3) Planned : planned OVCs / planned production time (hours)
- Preliminary costing

Question 8

Process costing

Answer 8

1) Single-stage : total cost per unit = total costs of the period / quantity produced
- Used for electricity, forestry, etc
2) Multi-stage : used when the manufacturing process meets different quality standards or if stock changes occur
- Recording of costs at each department level, subsequent differentiation between primary step costs and preliminary product costs
- For each stage, we apply the same procedure as for single-stage costing
- Special features : at the end of the period, not all intermediate products are finished, so we need to adjust the procedure.

Question 9

Equivalence number method

Answer 9

• Used to determine costs of related products, produced on similar manufacturing equipment with similar raw material (batch production)
• (Manufacturing costs per unit of series x)/(Manufacturing costs per unit of basic type) = (Equivalence number of series x)/(Basic type equivalence number)

Question 10

Cost allocation for joint/byproducts

Answer 10

1) Main product method : break down into main and byproducts
- The profits of byproducts are deducted from the total costs incurred before the decoupling point (neutralise byproducts)
2) Distribution method (based on production volume) : allocate costs incurred before decoupling point according to produced quantities/weights (we determine profit for all products)
3) Distribution method (based on market values) : allocate costs incurred before decoupling point based on market values