Flashcards
Cost Accounting
Cards in this deck (40)
- 1Cost accounting is a subset of what?Management accounting
- 2In cost accounting we classify expenses by _____, as opposed to financial accounting where they are classified by _____Cost: behaviour
Financial: function - 3Define total cost as a formula. What does variable cost depend on?Fixed cost + (variable cost per unit x units)
Variable cost changes with activity. - 4Provide examples of fixed & variable costs & semi-variable costsFixed = salary, rent, depreciation
Variable = wages, raw materials
Semi-Variable = electricity - 5In cost-volume profit (CVP) accounting, costs must ALWAYS be classified as ...?Fixed or variable
- 6As opposed to variable costs, fixed costs will not ______ with varying production. This leads to what general rule?Change. Therefore we do NOT treat fixed costs as units, because this is not how they behave. Always remains as total
(Do not break fixed costs into units) - 7How are fixed and variable costs represented graphically?
- 8What are the two assumptions we make in cost behaviour?- Linearity
- Relevant range - 9What is the relevant range of a cost? Provide an exampleLevel of activity over which a particular cost pattern exists. Bound by a min and max amount
E.g. office space at $30,000p.a. for 1000m2. As business grows, more office space required - 10Why can we assume linearity, even though it often isn't fully true?Within the relevant range, costs are mostly linear
- 11CVP analysis uses what to make decisions? When we separate costs into FC and VC, what is created?Cost behaviour. In separating costs, we create a contribution margin (sales - VC).
- 12What formulae are used in CVP analysis to calculate profit/loss?Sales - VC = CM
CM - FC = profit/loss - 13What does the contribution margin figure actually represent? What other figure might be calculate to represent this?$ left from sales to cover fixed costs after variable costs have been covered. Also represented by the CM ratio (CM/sales), which shows the portion of each sales dollar left to cover fixed costs
- 14What kind of questions can be answered with a CVP analysis?What sales volume is needed to cover changes in FC or VC? Impact of changing sale price? Etc.
- 15Sales - VC =Contribution margin (CM)
- 16CM - FC =Profit/loss
- 17What formula entails FC, VC, CM, profit, sales, and units?Sx = VCx + FC + p
(VC = VC per unit, S = sales per unit) - 18What does a break-even analysis primarily determine? What else can it tell us?The amount of activity needed to cover all business costs
- Can tell us activity required to reach profit targets
- Can tell us our margin of safety: how far above break-even point we are - 19At break-even point, your contribution margin equals what?@ break-even, CM = FC, because profit is 0
- 20Breakeven in units formula?BE (units) = FC/CM per unit
- 21Breakeven in dollars formula (2)?BE (dollars) = (FC/CM per unit) x sales price
BE (dollars) = FC/CM%
(N.B. CM% is the contribution margin ratio) - 22Break-even PLUS desired profit formulae tell us what?Sales volume required to reach a target profit
- 23Break-even + desired profit in units formula?BEu + desired P = (FC + profit) / UCM
- 24Break-even + desired profit in dollars formula?BE$ + desired P = (FC+profit / UCM) x sales profit
- 25What are the weaknesses of the break-even analysis?- Non-linearity: big assumption as relationships unlikely to be linear
- Stepped FC: most activities include various FC with different steps
- Multi-product businesses: complex - 26The cost accountant's job is to eliminate what activities?'Non-value' activities - ones that the customer gains no value from
- 27What is an alternative definition of cost (aside from FC + VC)? Define each componCost = direct cost + indirect cost
Direct: traceable to product e.g. raw mats
Indirect: not traceable to product e.g. electricity - 28How would direct vs. indirect costs react if production stops?Direct costs would cease, but indirect costs would still be incurred
- 29What is product costing?Ascribe all possible direct costs to the job, then charge each unit of output with its fair share of indirect costs
- 30Describe how product cost is calculatedRaw materials + labour + allocation of OH = total production cost
Total production cost / units = product cost - 31How does COGS relate to product cost?COGS = product cost x units sold
N.B. this differs from total production cost as it's only the units sold, not total units produced - 32What does manufacturing overhead consist of? Why do we use it?All manufacturing costs sub raw materials and direct labour. We can't figure out precise amounts per unit for indirect costs, so its lumped into an overhead pool and allocated
- 33What's a period cost?All other costs that aren't product costs, almost always indirect, usually exists in a lump sum for the period
- 34What are the 6 ways you can define costs- Product + period costs
- Direct + indirect costs
- Variable + fixed costs - 35Differentiate between retailers and manufacturersRetailers: buy finished goods, sell for marked-up price
Manufacturers: purchase raw materials, manufacture goods, sell - 36What 3 accounts exist in a manufacturing cost accounting system?1. Raw Materials - parts, assemblies, materials
2. Work in Progress - manufacturing costs
3. Finished Goods - cost of completed items (COGS) - 37How is manufacturing overhead allocated to different costs?By a predetermined overhead allocation rate (POAR), which uses budgeted cost
- 38What two values are used to calculate the POAR?POAR = estimated total MOH / estimated total units
- 39What is the estimated total units in the allocation base for the coming period (denominator of POAR formula) called?Cost allocation base (CAB)
- 40How do we calculate the actual overhead that was applied during the period?Overhead applied = POAR x actual activity
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- Flashcards on Cost Accounting, created by Guy Turner on 28/05/2019.
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- Guy Turner
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