Student self study copyCMA4-Costing Methods

• If we set the cost against the price tended (the selling price) for a job, what can we do? – We can measure the profit or loss made on each job • How does the job card help us to identify excessive costs at an early stage? – Job costs build up as the job is completed, on the job card we can see the current situation at a glance • What two problems, caused by faulty estimating can we solve by comparing the job cost with the estimate – Low estimate = low price = low profit (or loss) – High estimate = high price = loss of work to competitors
•
•
•
What is the nature of units in process costing? Give an example. – They are homogeneous (totally identical) and may be mixed together – e.g. liquid in a vat (oil in a refinery, beer in a brewery) What are the 6 examples given of industries where process costing can be readily applied? – refining oil (making fuel for cars); brewing beer; distilling whisky; soap making and making chemicals What does the costing system need to identify and measure to batches to give an average cost per unit? – We need to identify and measure the cost of M-L-O incurred at each process (Costs determined exactly the same way as in job and batch costing)
Costing Methods - Advantages of job costing
• Read page 30 “Advantages of Job Costing 4; 5.” and answer the questions
• How can we identify inefficiencies using job costing? – We can make a comparison with the performance on other jobs to identify inefficiencies • In what kind of contract does the customer agree to pay an agreed percentage as a profit margin.? – „Cost plus‟ – where the cost is very difficult to estimate • In these circumstances, why is a job card essential? – The job card is a reliable costing record. Costing Methods - Advantages of job costing
Cost & Management Accounting (CMA)
Costing Methods
• Read the section “Objective” and answer the questions
• In this part what will we learn about how cost accounts can be made useful to management? – by using the costing method that is most appropriate to the type and operation of the business • We determine costs and produce a cost statement. In the report what should we relate to what? – …relate the costs to the output of the business. • Name the 3 types of „output‟ or production referred to in choosing the correct costing method. – an individual job; a batch of similar items; continuous production Costing Methods - OBJECTIVE
Costing Methods - JOB COSTING
• Read “Job Costing” page 30 from “The card may accompany” to “…..reported to management.” and answer the questions • The Job card is used to collect all the costs which are spent on the job in one place. • Materials are _____________ on to the job and coded with the appropriate ___ ______. – requisitioned - job number • Labour is analysed according to _____ spent on the job. This is recorded on ____ ______ _____. – time - time record cards • _________ are absorbed to the job according to the applicable rate for each ___ ______. – Overheads - cost centre
• Read “Job Costing” pages 29-30 to “for that job” and answer the questions • What are the circumstances that make a job a convenient cost unit for the collection of costs? – where each job is capable of separate identification • Name the 4 industries where job costing is practised? What do these kinds of jobs have in common? – heavy engineering; foundry; machine tool; printing. jobs are the subject of special orders or contracts. • How is each job identified and what is raised (produced) for each job? – Job number (name) and a separate job card
Costing Methods - JOB COSTING
Material charged to job card (or batch or process
Costing Methods – Job Card
Costing Methods – Job Card
• Read page 30 “Advantages of Job Costing -1; 2; 3.” and answer the questions
Costing Methods - BATCH COSTING
•
•
• •
ቤተ መጻሕፍቲ ባይዱ
Process Costing, read page 34 to “…date per unit.” What happens as materials pass through each process (or step) of a series of continuous process? – they are transformed into the completed article What does each one of these stages form for the accountant? – a cost centre What can be analysed (charged to) each process? – the costs of M-L-O can be charged to the process What is „throughput‟? What financial information should we know about it as it passes between processes? – the output of one process = the input to another process – the M-L-O cost to date per unit for the last process