PIPFA Cost Accounting Flashcards

24 sample cards from the Cost Accounting deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. Give suitable apportionment bases for: (a) rent and rates, (b) lighting, (c) depreciation of machinery, (d) canteen costs.

   (a) Floor area; (b) Number of light points or floor area; (c) Value/cost of machinery; (d) Number of employees in each department.

2. What is the re-apportionment of service department costs?

   It is the secondary distribution of service cost centre overheads (e.g. canteen, maintenance, stores) to production cost centres, since service departments do not directly make products.

3. Name the methods used to deal with reciprocal services in overhead re-apportionment.

   The repeated distribution (continuous allotment) method, the simultaneous equation (algebraic) method, and the elimination/step-down method.

4. What is overhead absorption?

   Overhead absorption is the charging of overheads to cost units by applying a predetermined overhead absorption rate, so that each unit bears a share of indirect costs.

5. State the formula for a predetermined Overhead Absorption Rate (OAR).

   OAR = Budgeted (estimated) overheads / Budgeted level of activity (e.g. budgeted labour hours, machine hours, or units).

6. Name common bases for absorbing production overheads.

   Machine hour rate, direct labour hour rate, percentage of direct wages, percentage of prime cost, percentage of direct materials, and rate per unit of output.

7. What causes over-absorption and under-absorption of overheads?

   They arise because absorption uses a predetermined rate; differences occur when actual overheads differ from budgeted overheads and/or actual activity differs from budgeted activity.

8. How do you determine whether overheads are over- or under-absorbed?

   Compare overhead absorbed (Actual activity x OAR) with actual overhead incurred. Absorbed > Actual = over-absorption (credit); Absorbed < Actual = under-absorption (debit).

9. How is over/under-absorbed overhead treated in the accounts?

   It is transferred to the costing Profit and Loss Account for the period (over-absorption increases profit, under-absorption reduces profit), or apportioned across cost of sales and inventory if material.

10. What is job order costing and where is it used?

    A costing method where costs are accumulated separately for each distinct job or order made to a customer's specification. Used in printing, repairs, construction, and custom manufacturing.

11. What is batch costing and how is the unit cost found?

    Batch costing accumulates costs for a batch (group) of identical items produced together. Cost per unit = Total batch cost / Number of units in the batch. Used in pharmaceuticals, footwear, bakeries.

12. Distinguish normal loss from abnormal loss in process costing.

    Normal loss is the expected, unavoidable loss inherent in the process (charged to good output). Abnormal loss is loss in excess of normal expectation, valued at the cost of good units and written off to P&L.

13. How is normal loss treated and how is scrap value of normal loss handled?

    Normal loss bears no process cost; its cost is absorbed by good units. Any scrap/sale value of the normal loss is credited to the process account, reducing the cost of good output.

14. What is abnormal gain and how is it treated?

    Abnormal gain occurs when actual loss is less than normal loss, i.e. actual output exceeds expected output. It is valued at the cost per good unit, debited to the process account, and credited to the costing P&L.

15. What are equivalent units of production?

    Equivalent units express partially completed (work-in-process) units in terms of equivalent fully completed units, e.g. 400 units that are 50% complete equal 200 equivalent units, enabling cost-per-unit calculation.

16. What is the difference between joint products and by-products?

    Joint products are two or more main products of significant sales value arising together from a common process. A by-product is incidental output of relatively minor value produced alongside the main product(s).

17. Name common methods of apportioning joint costs to joint products.

    Physical units (quantity) method, sales value at split-off point method, net realisable value (NRV) method, and the average unit cost method.

18. What is the split-off point in joint product costing?

    The split-off (separation) point is the stage in the joint process at which the joint products become separately identifiable; joint costs are incurred up to this point and apportioned among the products.

19. Define contribution.

    Contribution = Sales − Variable Costs. It is the amount that contributes first to covering fixed costs and then to profit. Contribution per unit = Selling price per unit − Variable cost per unit.

20. State the formula for the Contribution to Sales (C/S) ratio.

    C/S ratio (P/V ratio) = (Contribution / Sales) x 100, or (Contribution per unit / Selling price per unit) x 100.

21. How is the break-even point calculated in units and in revenue?

    BEP (units) = Fixed Costs / Contribution per unit. BEP (revenue) = Fixed Costs / C/S ratio.

22. What is the margin of safety?

    The amount by which actual or budgeted sales exceed the break-even sales. Margin of Safety = Total Sales − Break-even Sales; it can be expressed in units, value, or as a percentage of sales.

23. How do you calculate the sales level required to achieve a target profit?

    Required sales (units) = (Fixed Costs + Target Profit) / Contribution per unit; Required sales (value) = (Fixed Costs + Target Profit) / C/S ratio.

24. State the key assumptions underlying Cost-Volume-Profit (CVP) analysis.

    Costs split clearly into fixed and variable; selling price, variable cost per unit, and fixed costs remain constant; production equals sales (no stock change); a single product or constant sales mix; and activity is the only factor affecting costs.

What this deck covers

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