Cost Classification by Behaviour

fixed variable semi-variable stepped

can be specifically attributed to a particular cost object

cannot be specifically attributed to a particular cost object

direct material cost + direct labour cost + direct expenses

Increases in total as the level of activity increases. Remains constant per unit as the level of activity increases.

Does not increase in total as the level of activity increases. Reduces per unit as the level of activity increases.

Contains both fixed and variable elements.

Remains fixed over a certain range of activity, but increases if activity goes beyond this range, usually in increments of activity.

Numerical (1234) Alphabetical (ABCD) Alphanumerical (AB34)

Charged to the individual product and matched against the sales revenue they generate in the period in which they are sold. These would include direct material, direct labour, and absorbed production overheads.

Costs which are charged in full to the statement of profit or loss in the period which they are incurred. They are not directly linked to a product. These include costs such as administrative costs, selling and distribution costs, and finance costs.

Raw Materials Work in Progress (WIP) Finished Goods

First in, First out. Assumes issues to production will be made from the oldest inventory available leaving in the most recent purchases. When prices are rising FIFO will value closing inventory at a higher value and give a higher profit figure than LIFO or AVCO.

Last in, First out. Assumes that the issues to production will be made from the newest inventory available leaving the oldest purchases in inventory. When prices are rising, LIFO will value closing inventory at a lower figure and give a lower profit figure than FIFO or AVCO. LIFO is not accepted by HMRC or IAS 2

Assumes that the issues to production will be made at an average price. A new average cost is produced before each issue to production.

Manufacturing Account Order

Opening Inventory of Raw Materials Purchases of Raw Materials Closing Inventory of Raw Materials DIRECT MATERIALS USED Direct Labour DIRECT COST Manufacturing Overheads MANUFACTURING COST Opening Inventory of Work in Progress Closing Inventory of Work in Progress COST OF GOODS MANUFACTURED Opening Inventory of Finished Goods Closing Inventory of Finished Goods COST OF GOODS SOLD

Total hours of overtime worked X the full overtime rate

The amount paid over the basic hourly rate for overtime. If overtime is £15, basic rate is £10, the overtime premium is £5

Overhead Absorption Rate

Budgeted Overheads / Budgeted Activity Levels

A budget produced for a single activity level. They remain unchanged even if the actual activity is different.

Flexible (Flexed) Budget

Designed to change as volume of activity changes.

Difference between actual figures and comparison figure (actual vs flexed)

Actual result is better than the flexed budget

Actual results are worse than the flexed budget

Common causes of sales variances

increased/decreased selling price more competition more/less units sold than predicted

Common causes of materials variances

better/worse quality materials more/less wastage than expected

Common causes of labour variances

more/less experienced staff work took more/less hours than expected

L2 PCTN General Flashcards

Flashcard

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Other

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Vocational training

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Practice Problem

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Hard

Katie Bentham

FREE Resource

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35 questions

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1.

FLASHCARD QUESTION

Front

Cost Unit

Back

an individual unit for which the costs can be separately identified

2.

FLASHCARD QUESTION

Front

Cost Centre

Back

area of business for which costs will be separately ascertained

3.

FLASHCARD QUESTION

Front

Revenue Centre

Back

area of a business for which revenues will be separately ascertained

4.

FLASHCARD QUESTION

Front

Profit Centre

Back

area of business for which costs and revenues are ascertained

5.

FLASHCARD QUESTION

Front

Investment Centre

Back

area of business where costs, revenues, and net assets are ascertained

6.

FLASHCARD QUESTION

Front

Cost Classification by Function

Back

cost of sales

distribution costs

admin expenses

finance costs

7.

FLASHCARD QUESTION

Front

Cost Classification by Element

Back

materials

labour

overheads

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