Traditional & Advanced Costing Methods

Shahid Musthafa
Mind Map by , created over 6 years ago

Master ACCA F5: Performance Management (A1 :Activity Based Costing) Mind Map on Traditional & Advanced Costing Methods, created by Shahid Musthafa on 07/08/2013.

Shahid Musthafa
Created by Shahid Musthafa over 6 years ago
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Traditional & Advanced Costing Methods
1 Activity Based Costing
1.1 The best example of where activity costs are tracked and studied is in manufacturing. Given a plant which produces many different products, financial managers are tasked with the problem of how to accurately assign production costs to each product. Using activity-based costing is a popular method for assigning costs since it is a good compromise between efficiency and accuracy. Assigning costs accurately is important to determine the profitability of products and subsequently, to make rational production decisions.
2 Absorption Costing
2.1 The aim of the Absorption costing is to calculate the full cost of production (I.e, it does not take into account the Non-manufacturing costs )
2.2 Production Costs
2.2.1 prime costs Direct labour Direct Materials
2.2.2 Indirect Costs The Role of AB Costing comes while allocation of the Indirect costs ,its a difficult process that i had practiced :-)
2.3 All production overheads must be absorbed into units of production, using a suitable basis, e.g. units produced, labour hours or machine hours. The assumption underlying this method of absorption is that overhead expenditure is connected to the volume produced.
3 Misc Information
3.1 Purpose of Costing
3.1.1 Value inventory The cost per unit can be used to value inventory in the statement of financial position (balance sheet).
3.1.2 Record costs The costs associated with the product need to be recoded in the income statement.
3.1.3 Price products The business will use the cost per unit to assist in pricing the product. For example, if the cost per unit is $0.30, the business may decide to price the product at $0.50 per unit in order to make the required profit of $0.20 per unit.
3.1.4 Make decisions business will use the cost information to make important decisions regarding which products should be made and in what quantities.

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