Flashcards
2. Absorption and marginal costing
Cards in this deck (13)
- 1Absorption costingMethod that assigns all or a portion of production OHCs to C units
By means of OH absorption r's - 2Traditional reasonsStock valuation
Pricing decisions
Establishing profitability of products - 3OHs/indirect costExpenditure on L, M or S
Can't be economically identified w a specific saleable C unit - 4Steps for allocating costs1. Assign manufacturing OH to production and S Ccentres
2. Reallocate costs assigned to S Ccentres to production Ccentres
3. Compute separate OH r's for each production Ccentre
4. Assign Ccentre OHs to products - 5Predetermined OH r'sAvoids fluctuating unit Ps t/out year
Results in difs in what's absorbed into C of production
Stocks of finished goods carry OHCs from prior periods - 6Arguments for ACConsiders importance of all Cs in producing p/s
Consistent w external reporting purposes
Require less recording effort than ABC - 7Arguments against ACVery old system
Rs are crude method in today's highly technological environment
Determining basis is very arbitrary and will have direct impact on other decisions - 8Marginal costingOnly VCs charged as COS
Contribution calculated: SR - VCOS
FC charged to P/L
Closing stock valued at marginal PC - 9ContributionSales value - VCs
May be expressed in absolute terms or contribution per unit - 10Limiting factorsOften linked to key factor to give sum required to cover FOH and profit
- 11Use of MCProvide info for ST planning and decision making
In routine cost accounting: cost calculation and stock valuation - 12Arguments for MCEasily understood
No apportionments
No over/under absorption of OH
FCs incurred on time basis
Accounts closely resemble actual CF situ - 13DifferencesAC - F manuf.g OHs allocated to products, included in inventory valuations
MC - only V manuf.g Cs are assigned to the product, fixed are counted as period Cs
Both treat non-manuf.g OHs as period Cs
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- Bachelors Degree Finacial Control Flashcards on 2. Absorption and marginal costing, created by ciara.monaghan9261 on 17/05/2016.
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