Costing 2

Costing 2

1. direct cost

   • labour costing
     • flat rate £/hr
       • all staff=constant rate. labour cost per unit=total hourly salary/units produced per hour
     • piecework rate
       • straight
       • differential

2. costing methods

   • order costing
     • direct material and labour (not overheads)=charged to unit cost
     • types of order costing
       • batch
         • quantity of identical products
           • cost collected as one job then divided through batch
         • cost
           • prime cost=direct material+direct labour
           • production cost=prime cost+production overhead
           • total batch cost=production cost+general overhead
           • cost per unit=total batch cost/batch size
           • profit per unit=unit sale price-unit cost
       • job
         • charge all costs to a particular job.-create job card
           • card records-actual labour times,grades of pay, material quantities+prices, time spent in production cost centre, direct expense, absorbed production overhead
       • contract
       • cost unit=job,batch,contract
   • continuous costing
     • standard activity, cost centre, total costs are divided equally between the cost units produced
     • find average cost per unit
     • approaches
       • service costing
       • process costing
       • joint costing
       • oil industry

3. fixed costs

   • independent of activity level-rent, rates, insurace
     • considered constant in short term

4. variable cost

   • vary according to level of activity-direct material cost
   • assumed to be linear

5. sold item=generate income

   • must first pay total cost of production =fixed+variabel
     • £ left over-profit
   • cost analysis techniques are used
     • absorption costing
       • not distinguish between fixed and variable costs
         • total cost=simply allocated to product and profit for a particular project calculated
     • marginal costing
       • solely on variable cost, fixed costs classed as monthly bills. dealt with in profit/loss accounting
         • marginal cost=variable cost=direct labour+direct material+variable overheads
         • break even point, product sales income=total operating cost(variable+fixed) i.e. no profit or loss
       • every item sold is to generate income
         • income generated=pay for its marginal costs first
           • left over=contribution=sales-marginal (variable) costs
             • at first=contribution to fixed cost, then to profit.
               • consider contribution as money left once variable costs have been paid.
               • can get SOC contracts.price customer will pay >variable but insufficient to cover total cost, but the previous jobs pay the fixed cost, therefore as long as variable is paid its all profit
       • more reliable