Chapter 6

Question 1

cosst incurred by a business, other than material and labour, are known as?

Answer 1

expenses

Question 2

what three areas can expenses cover?

Answer 2

production, selling and distribution, administration

Question 3

what are the different types of direct expenses?

Answer 3

royalty or patent, subcontracted charges, expenses associated with machinery or equipment

Question 4

how are indirect expenses identified/

Answer 4

upon their nature, production or non production

Question 5

what are prodcution costs known as

Answer 5

production overheads

Question 6

what are non production costs known as

Answer 6

non - production overhead

Question 7

what are the production overheads included in?

Answer 7

the total production cost of product

Question 8

production overhead of a factory can include?

Answer 8

heating the factory
lighting the factory
renting the factory

Question 9

production make take place over a number of different?

Answer 9

cost centers and each should be assigned with its fair share of overhead

Question 10

what can also provide support to the production cost centers?

Answer 10

servcie cost centers

Question 11

examples of cost centers

Answer 11

assembly
machining
finishing

Question 12

examples of production service cost center

Answer 12

maintenance
canteen
stores

Question 13

non production over heads can be split into what?

Answer 13

differetn categories determined by why or how the cost is incurred

Question 14

What are the different categories nonproduction overheads can be split into?

Answer 14

Administration, selling and distribution, finance, legal and professional charges

Question 15

What are the steps for allocation and a portionment

Answer 15

Step one allocation orapportionment
Step two reapportion
Step three absorb

Question 16

What is the purpose of allocation and a portion?

Answer 16

To attribute production over head cost to production cost centres

Question 17

What happens when a business has a mix of production service cost centres?

Answer 17

Any production overheads in the service cost centres are reapportioned to the production centres

Question 18

What is the purpose of absorption?

Answer 18

To assign the production overheads to the units produced by the cost centres

Question 19

What are the three steps of absorption?

Answer 19

Overheads are allocated or a portion to cost centres
Any service cost centres a rear portion to production centres
Overheads are absorbed into units of production 

Question 20

What is allocation?

Answer 20

When an overhead relates entirely to one production or service centre, it can be wholly attributed to that single production or service Centre

Question 21

Examples of costs that relate to one specific cost centre

Answer 21

Accounts, accounting overhead machining department, insurance of machines, stores, stores wages, canteen, maintenance of kitchen equipment

Question 22

What is apportionment?

Answer 22

And overhead relates to more than one production or service centre it shared over the centres on a fair or suitable basis

Question 23

Example of apportioning overheads

Answer 23

Rent rates, floor space lighting and heat, uses of electricity depreciation, carrying amount of asset supervisor salaries, time spent supervising

Question 24

What is reapportionment?

Answer 24

Proportioning the service cost Centre total cost to the production cost centres that make use of the service cost centre

Question 25

Why is reapportionment done?

Answer 25

To have all production costs identified with a production cost centre so we can work out the cost of the units that the cost produces 

Question 26

The total overhead of each production cost centre must be charged to

Answer 26

The output of the production cost centres

Question 27

What is overhead absorption?

Answer 27

The charging of a production cost centres overhead cost to the cost units produced by the cost centre

Question 28

What is the absorption rate based on?

Answer 28

Budgeted activity and budgeted overheads

Question 29

What is the main difficulty in service costing?

Answer 29

The establishment of suitable cost unit

Question 30

What are overhead absorption rates based on?

Answer 30

Budgeted overhead costs in the budgeted volume of a activity, they are predetermined

Question 31

when can we calculate the full production cost per unti

Answer 31

when we know how much overhead each unit is obsorbing

Question 32

can you use absorption rate for multi-product businesses?

Answer 32

may be inappropriate

Question 33

How do you know which absorption rate to use?

Answer 33

Largely depends on the nature of the operations concerned

Question 34

Why is overhead absorption rate predetermined

Answer 34

To know the budget cost of each unit of production, ,To be able to make decisions about the products in the sales and production

Question 35

What are the three steps for calculating an under over absorption?

Answer 35

Calculate OAR Calculate OAR x actual activity Compare the actual overhead cost with the absorbed overhead

Question 36

What does the production overhead account record?

Answer 36

The movement of costs are associated with the overheads(indirect costs)

Question 37

What is the adjustment for under absorbed overhead?

Answer 37

A debit to the costing statement of profit or loss

Question 38

Why do you debit the statement of profit and loss for an under absorbed overhead?

Answer 38

We need to decrease profit and increase the expense in the costing statement of profit or loss

Question 39

What is the adjustment for an over absorbed overhead?

Answer 39

A credit to the costing statement of profit or loss

Question 40

Why do you credit the statement of profit and loss for an over absorbed overhead?

Answer 40

You need to increase profit and decrease the expense

Question 41

What would be the accounting entry for the adjustment for over absorbed overhead?

Answer 41

Debit production overheads and credit statement of profit loss

Question 42

What is ABC?

Answer 42

Activity based costing, an alternative approach to product costing

Question 43

Is abc a form of absorption costing?

Answer 43

Yes, but rather than absorbing overheads on production volume basis, it allocate them to cost pauses before absorbing them into unit using cost drivers

Question 44

What is the cost pool?

Answer 44

Overhead costs are gathered before being allocated to service or production.

Question 45

What is a cost driver?

Answer 45

The root cause of why a cost is determined

Question 46

What are the five steps to calculating an activity based costs using abc

Answer 46

Group production overheads into activities according to how they are driven Identify cost drivers for each activity ED what causes these activities to be incurred? Calculate a cost driver rate for each activity Absorb the activity costs into the product Calculate the overhead cost per unit of product 

Question 47

Advantages ofabc

Answer 47

Better in insight More accurate cost per unit

Question 48

Disadvantages of a BC

Answer 48

Impossible to allocate all overhead costs to specific activities Harder to explain to stakeholders The benefits might not justify the costs 

Question 49

what are the different OAR rates

Answer 49

direct material direct labour prime cost labour hour rate machine hour rate unit of output rate