Chapter 4

Katie Start
Mind Map by Katie Start, updated more than 1 year ago
Katie Start
Created by Katie Start almost 5 years ago
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Elements of costing 2016 specification

Resource summary

Chapter 4
  1. Types of inventory:
    1. Raw materials
      1. These are the materials that have been bought by a manufacturing business and are ready to be transferred to the production area where they will be used to make the finished goods.
      2. Work in progress
        1. This comprises part-finished products that are awaiting completion.
        2. Finished goods
          1. These are manufactured items that have been completed and are ready for sale.
        3. Valuation methods:
          1. FIFO
            1. First in first out
              1. Inventory that is being issued is valued at the oldest purchase price. This means that the inventory left in the stores is valued at the most recent purchase price.
            2. LIFO
              1. Last in first out
                1. Inventory that is being issued is valued at the most recent purchase price. This means that the inventory left in the stores is valued at the oldest purchase price.
              2. AVCO
                1. Average cost
                  1. Inventory that is being issued is valued at an average price. This means that the inventory left in the stores is valued at the most recent purchase price.
                    1. Average cost = Total cost of goods in stores / number of items in stores
              3. Manufacturing account
                1. Manufacturing account format:
                  1. Opening inventory of raw materials.
                    1. Purchases of raw materials.
                      1. Closing inventory of raw materials.
                        1. Direct materials used.
                          1. Opening inventory of raw materials + Purchases of raw materials - Closing inventory of raw materials
                          2. Direct labour.
                            1. Direct cost.
                              1. Direct materials used + Direct labour
                              2. Manufacturing overheads.
                                1. Manufacturing cost.
                                  1. Direct cost + Manufacturing overheads
                                  2. Opening inventory of work in progress.
                                    1. Closing inventory of work in progress.
                                      1. Cost of goods manufactured.
                                        1. Manufacturing cost + Opening inventory of work in progress - Closing inventory of work in progress
                                        2. Opening inventory of finished goods.
                                          1. Closing inventory of finished goods.
                                            1. Cost of goods sold.
                                              1. Cost of goods manufactured + Opening inventory of finished goods - Closing inventory of finished goods
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