Questions and answers Flashcards
to study for exams (15 cards)
two objectives of cost account
- Ascertain cost
- Facilitate planning nad control
3.Helps in decision making.
4.To determine selling price.
perpetual inventory system
The Perpetual Inventory System is a method of inventory management where inventory records are updated continuously in real-time as transactions occur—such as purchases, sales, or returns.
semi variable cost
Semi-variable cost (also called mixed cost) is a type of cost that has both fixed and variable components.
opportunity cost
Opportunity cost is the value of the next best alternative that is forgone when a choice is made.
what is premium plan
A premium plan refers to a wage payment system where workers are paid a standard wage plus an extra amount (premium) for completing work in less than the standard time.
limitations of cost volume analysis
- Assumes costs and revenue are straight-line – real-life costs may not increase evenly.
- Hard to split costs exactly into fixed and variable.
- Best for one product only – gets confusing with many products.
- Doesn’t consider market changes like price shifts or competition.
- Useful only for short-term planning, not for long-term decisions.
How does the cost accounting differ from the financial accounting
Cost accounting focuses on recording, analyzing, and controlling costs to aid internal management, while financial accounting records overall financial transactions to prepare reports for external stakeholders like investors and regulators.
List out any two features ofproduct cost.
- Includes all manufacturing costs – such as direct materials, direct labor, and manufacturing overhead.
- Assigned to inventory – it becomes part of the cost of goods until the product is sold.
List out any two reasons ofholding inventory.
- To meet customer demand without delay.
- To avoid production stoppages due to shortage of raw materials.
Write any two features of premium plan.
- Extra payment is given to workers for completing tasks in less than standard time.
- Encourages higher efficiency, as workers earn more by saving time.
write any two characteristics of cost accounting.
- Analyzes and records costs related to production, operations, and services.
- Provides detailed cost information to assist in planning, control, and decision-making.
What are the major causes of overhead variance
- Volume Variance – Differences between the expected and actual production levels, affecting both fixed and variable overheads.
- Expenditure Variance – Differences between the actual cost of overhead items (like utilities, salaries) and the budgeted cost, often due to price changes.
- Efficiency Variance – Variations in the actual hours or resources used compared to the standard or expected levels, impacting variable overheads.
- Spending Variance – Occurs when actual costs deviate from the expected costs, caused by inefficient spending or changes in input prices.
What is meant by ABC control system? What are its limitations
Activity-Based Costing (ABC) allocates overhead costs based on activities that drive costs, offering more accuracy than traditional methods.
1. Complex and Time-Consuming – Requires detailed data and can be resource-heavy.
2. Not Suitable for All Organizations – Best for companies with complex products and processes.
3. Requires Continuous Maintenance – Needs constant updates as activities or cost drivers change.
4. Potential for Over-Detailing – Can complicate the process with excessive focus on minor details.
Why is it important for management to understand the cost volume profit
analysis?
- Helps in Decision Making – Provides insights into pricing, cost control, and product mix decisions.
- Break-even Point Identification – Helps determine the sales level needed to cover fixed and variable costs.
- Profitability Forecasting – Assists in estimating how changes in costs, sales volume, and price affect profits.
- Risk Management – Aids in assessing the impact of fluctuating costs and sales on overall business stability.
- Budgeting and Planning – Useful for financial forecasting, budgeting, and setting realistic targets.
What is meant by just in time inventory system? Explain its limitations.
JIT is an inventory management strategy where materials are ordered and received only when needed for production, minimizing inventory holding costs.
1. Vulnerability to Supply Chain Disruptions – Any delay or disruption can halt production due to lack of inventory.
2. High Dependence on Suppliers – Requires reliable suppliers with consistent quality and delivery times.
3. Limited Buffer for Unexpected Demand – Does not account for sudden spikes in demand or unexpected events.
4. Increased Ordering Costs – Frequent ordering can lead to higher transaction costs.
5. Not Suitable for All Industries – Works best for industries with stable production schedules and predictable demand.
