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Flashcards · YAC11 · AS Topic 1.4

Introduction to costing (AS Level) flashcards

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Topic 1.4: Introduction to costing

FIFO vs LIFO in rising prices, and which IAS 2 allows
FIFO values closing inventory at the latest prices and gives higher profit; LIFO at the oldest prices and lower profit. LIFO is not permitted under IAS 2.
An item cost 52. It sells for 64 after completion costs of 9 and selling costs of 6. Inventory value?
NRV = 64 − 9 − 6 = 49, below cost, so 49. This applies prudence.
Buy 100 units at 4, then 50 at 5, then issue 120. Closing inventory under FIFO and LIFO?
30 units left. FIFO: 30 × 5 = 150. LIFO: 30 × 4 = 120.
Halsey bonus: time allowed 30 hours, time taken 24, rate 15 an hour. Total earnings?
Bonus = 50% × 6 hours saved × 15 = 45. Earnings = 24 × 15 + 45 = 405.
Rowan bonus: time allowed 30 hours, time taken 24, rate 15 an hour. Total earnings?
Bonus = (24 ÷ 30) × 6 × 15 = 72. Earnings = 360 + 72 = 432.
Gross pay 500; employer's contributions 11% of gross pay. Employer cost?
500 × 1.11 = 555. The employee's own tax and contributions come out of gross pay and are never added to employer cost.
Machine hour rate 8.00. Actual 9,400 machine hours; actual overhead 73,100. Over- or under-absorbed?
Absorbed 9,400 × 8 = 75,200, above actual 73,100: over-absorbed by 2,100, which is added to profit.
When is continuous allotment used?
When service departments serve each other. Their costs are shared out repeatedly until the amount left is very small, then split between production departments only.
Job cost sheet: build-up from direct costs to price
Direct materials + direct labour + direct expenses = prime cost; + absorbed production overhead = production cost; + administration, selling and distribution overhead = total cost; + profit = price.
Day work vs piecework: one advantage and one disadvantage each
Day work: simple, steady pay, quality not rushed; but no incentive to raise output. Piecework: rewards effort, fixed labour cost per unit; but quality risk and pay hit by breakdowns.
A 25% mark-up on a cost of 80: price, and the margin it gives
Price 100. Profit 20 ÷ 100 = a 20% margin. Mark-up is on cost; margin is on selling price.

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