Flashcards
ACCN4 Manufacturing account, Unrealised profit, Marginal costing, Absorption costing and ABC
Cards in this deck (32)
- 1PRIME COST section of manufacturing accountOpening stock of raw materials
Add: Purchases of raw materials
Add: Carriage inwards
Less: Purchase returns
Less: Closing stock of raw materials
Equals: COST OF RM CONSUMED
Add: Direct labour
Add:Direct expenses
Equals: PRIME COST - 2MANUFACTURING OVERHEADS section of manufacturing accountFactory overheads:
Add: Indirect labour
Add: Rent of factory
Add Depn of machinery
Add: Opening work in progress
Less: Closing work in progress
Equals: PRODUCTION COST OF GOODS COMPLETED - 3Income statement layout of manufacturing businessSales
COST OF SALES:
Opening stock of finished goods
Add: Production cost of goods completed
Less: Closing stock of finished goods
GROSS PROFIT
Less: Non-production overheads
NET PROFIT - 4What is work in progress?Partly finished goods that are not yet fully completed to be sold
- 5How is inventory recorded in the balance sheet of a manufacturing business?There are 3 types of stock to be recorded under current assets:
1. Stock of raw materials
2. Stock of work in progress
3. Stock of finished goods - 6What is transfer price?Manufacturing businesses transfer their products from the factory to the income statement at cost plus mark up percentage
- 7Why do you have to adjust for unrealised profit?1. Inventory should be valued at the lower of cost and NRV
2. Realisation concept states that profits should not be included until fully realised.
3. Prudence concept states that profit should be understated rather than overstated - 8How do we calculate provision for unrealised profit?Inventory at cost plus mark up x percentage
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100 + percentage - 9How is provision for unrealised profit treated in the balance sheet?Total provision for that year is deducted from inventory of finished goods under current assets
- 10How is provision for unrealised profit treated in the income statement?1. Increase - Deducted from gross profit
2. Decrease - Added to gross profit - 11How do you calculate marginal cost per unit?Total variable (direct) costs per unit
- 12Define variable costsVary with level of production (output) e.g. direct materials and direct labour
- 13Define fixed costsDo not vary with the level of production (output) e.g. rent
- 14Define semi-variable costsPartly fixed and partly variable e.g. telephone costs which have fixed line rental but variable charge per call
- 15What is contribution and how is it calculated?Is the profit made before deducting fixed costs to get profit.
Selling price - Variable costs - 16How do you calculate the number of units to be sold to break even?Total fixed costs
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Contribution per unit - 17How do you calculate the revenue at break even point?Total fixed costs
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Contribution per unit/Selling price per unit - 18What is margin of safety?The difference between the amount of sales made and the amount needed to break even
- 19How do you calculate margin of safety?Current output - B.E output x100
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Current output - 20How do you calculate units needed to be sold to reach target profit?Total fixed costs + Target profit
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Contribution per unit - 21In what situations can you apply marginal costing?1. Whether to make or buy a product
2. Whether to accept a special order
3. How to maximise profits when limited resources are available - 22What are make or buy decisions?When business decides to whether to continue manufacturing product or buy in from outside supplier
- 23Steps in producing an optimum production plan1. Calculate contribution per unit
2. Calculate contribution per limiting factor e.g. per labour hour
3. Rank products in order with highest contribution being first
4. Produce a production plan that would maximise profits - 24What is absorption costing?Absorbs all factory overheads in total production cost of each unit
- 25Steps in calculating overhead absorption rate (OAR)1. Distinguish between production departments (cutting) and service departments (canteen)
2. Decide what basis to use to apportion overheads
3. Apportion overheads between all departments
4. Re-apportion overheads from service departments - 26How to calculate OARDepartment overheads in pounds (£)
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Department dircet machine/labour hours
Choosing machine or labour hours depends on how capital intensive or labour intensive the department is - 27What is a cost unit?Unit of output to which costs can be charged
- 28What is a cost centre?Sections of a business where costs can be charged
- 29What is activity based costing?Charges overheads to output on the basis of activities
- 30What are cost drivers?Activities which cause costs to be incurred
- 31What are cost pools?Groups of overhead costs that are incurred by the same activity
- 32Advantages of ABC1. Cost information is more accurate
2. Can identify costs relating to different products instead of whole business.
3. Management information in decision making is improved.
4. More accurate calculations of selling price can be made.
5. Identifies areas of waste and inefficiency.
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- Accounting Flashcards on ACCN4 Manufacturing account, Unrealised profit, Marginal costing, Absorption costing and ABC, created by umer.sabir on 15/05/2014.
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- umer.sabir
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