Skip to content
Marlbridge
Free trial

Flashcards · 9706 · AS Topic 2

Cost and management accounting (AS Level) flashcards

19 cards on AS Topic 2, subtopics 2.1 to 2.2. Pick a subtopic or study them all.

Study mode needs JavaScript. Every card is listed below, so you can still cover the answers and test yourself.

All 19 cards

For a quick read-through or printing. Cover the right-hand side to test yourself.

2.1 Costs and cost behaviour

Direct cost and prime cost
Direct cost: traceable to a cost unit (direct materials, direct labour, direct expenses). Prime cost: the total of direct costs.
Semi-variable cost vs stepped cost
Semi-variable: a fixed part plus a variable part. Stepped: fixed within a range of activity, then jumps at a threshold.
High-low method: total cost $8,000 at 1,000 units and $10,000 at 1,500 units. Variable and fixed parts?
Variable cost per unit = change in cost ÷ change in output = $2,000 ÷ 500 = $4. Fixed = $8,000 − (1,000 × $4) = $4,000.
One supervisor ($2,500) is needed per 20 workers or part. Cost for 65 workers?
65 ÷ 20 = 3.25, rounded up to 4 supervisors. 4 × $2,500 = $10,000.
Opening 50 units at $4.00, bought 50 at $5.00, issued 60. Closing inventory under FIFO and AVCO?
FIFO: 40 × $5.00 = $200 (issues $250). AVCO: average $450 ÷ 100 = $4.50; 40 × $4.50 = $180 (issues $270).
When prices are rising, which of FIFO and AVCO gives the higher profit?
FIFO. Issues are priced at the older, lower costs, so closing inventory is higher and so is profit.
Just in time (JIT): two benefits and two risks
Benefits: lower storage cost, less cash tied up, less obsolescence. Risks: stoppages from late deliveries, lost bulk discounts, higher ordering costs.
Classify a factory supervisor's salary by traceability and by behaviour
Indirect labour (an overhead) and fixed.

2.2 Traditional costing methods

Unit, job and batch costing: when each is used
Unit: identical output or a repeated service (cost per patient visit). Job: work to a customer's order (custom furniture). Batch: groups of identical items (a bakery batch).
Allocate, apportion and reapportion overheads
Allocate: charge a whole overhead to one cost centre. Apportion: share an overhead on a fair basis (rent on floor area). Reapportion: recharge service department costs to production departments.
Overhead absorption rate: formula and choice of basis
OAR = budgeted overhead ÷ budgeted activity. Use machine hours for machine-led work and labour hours for labour-led work. Absorbed overhead = actual activity × OAR.
Budgeted overhead $90,000, budgeted 15,000 labour hours. Actual: 14,200 hours, overhead $88,000. Result?
OAR $6.00 per hour. Absorbed 14,200 × $6 = $85,200. Under-absorbed by $2,800, which reduces profit.
Price $50, variable cost $30, fixed costs $80,000. Contribution, break-even point and C/S ratio?
Contribution $20 per unit. Break-even 80,000 ÷ 20 = 4,000 units ($200,000 revenue). C/S ratio 20 ÷ 50 = 40%.
Same product (contribution $20, fixed costs $80,000): units for a $30,000 target profit, and margin of safety at a budget of 6,000 units
Target: (80,000 + 30,000) ÷ 20 = 5,500 units. Margin of safety: 6,000 − 4,000 = 2,000 units, or 33.3% of budget.
Inventory rises by 400 units; fixed overhead is absorbed at $5 per unit. Which profit is higher, marginal or absorption, and by how much?
Absorption profit is higher by 400 × $5 = $2,000, because fixed overhead is carried forward in closing inventory.
Make or buy: 8,000 units, variable cost $9.00, avoidable fixed cost $10,000, supplier quote $10.50. Decision?
Make cost = $9.00 + ($10,000 ÷ 8,000 = $1.25) = $10.25 per unit. Make: it saves $0.25 × 8,000 = $2,000.
Closing a product line: what do you compare?
Its contribution with the fixed costs that closure would avoid. Ignore unavoidable shared costs such as allocated head office costs.
Limiting factor: how are products ranked?
By contribution per unit of the scarce resource (not contribution per unit). Fill demand in that order until the resource runs out.
Special order: when should it be accepted on financial grounds?
When the price is above variable cost and there is spare capacity. Then weigh non-financial factors such as the effect on regular customers.

Revise Cost and management accounting further