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43 Cards in this Set

  • Front
  • Back
What is stock?
It is material or goods that are stored to meet and organisation's requirements. Stock can be raw materials, work in progress or finished goods
Why do we need stock control?
Stock control is necessary so a firm does not stock too much or too little stock. Overstock and understocking both cause problems
What is a Direct Cost
One which can be traced directly to the item made
What problems does overstocking cause?
Ties up capital needlessly (money)
risk of loss due to deterioration/evaporation
higher risk of theft
Unnecessary storage costs
Greater risk of obsolescence i.e. fashion changes
What problems does understocking cause?
Materials may not be available when needed causing production delays
Risk of losing customers
failure to take advantage of bulk discounts
Increased clerical costs due to increased number of orders
What are two cost elements?
Stock
Labour
Name four store room documents
Materials requisition
Purchase requisition
Purchase Order
Goods Received note
What is stock taking?
involves counting the stock to compare the recorded level of stocks with the actual amount of goods in the store room
What is Perpetual Inventory?
This is when the stock record cards for each item of stock are updated immediately stock is received into or leaves the stock room
What is continuous stock taking?
A physical check on actual stocks is made at frequent but irregular intervals.
What is periodic stock taking?
This is where the entire contents of the stores are checked at one time, often only once per year
What is the concept of prudence?
Where stock should not be overvalued otherwise the profit figure will be unnecessarily high and the corporation tax to be paid will be higher

the general rule is that stocks are valued at the lower of COST or NET REALISABLE VALUE
What is the Net Realisable Value
The estimated selling price of the stock (after any costs of getting it into saleable condition)
What is FIFO?
First In First Out

Stock is priced out assuming that the oldest stock is used up first
What are the advantages of FIFO?
good method when prices are stable
easy method to understand as it usually matches the actual flow of stock
uses the perpetual inventory system
What are the disadvantages of FIFO
Time consuming to operate
When prices are rising, stock costs will not reflect current prices
Comparisons of different years may be difficult
What is LIFO?
Last In First Out
What are the advantages of LIFO?
costs are related to current prices
helpful where costs are used for estimating sales prices to customers
Issue price is a realistic indication of buying in new stock
What are the disadvantages of LIFO?
May be time consuming to operate
Comparisons of different accounting periods may be difficult
What is AVCO?
Average cost/Weighted Average

Stock is priced out assuming the average price paid for the materials currently in stock. new averages have to be calculated after each new delivery
What are the advantages of AVCO?
Less clerical work than FIFO or LIFO
Stock values usually acceptable to financial accountants
What are the disadvantages of AVCO?
In the periods of constant price changes, the calculation of prices changes can be time-consuming
What is Direct Labour?
Direct Labour is classed as the labour used to actually make something on the factory floor e,g,
machine operators
assembly line operators
polishers
craftsmen
What are the different ways of recording labour costs?
Work attendance records - showing production attained
Clock Cards - shows daily start/finish time for each employee
Time sheets - shows time spent each day by each employee; idle time etc.
Job cards - gives details of time employee has spent on particular jobs
What are the methods of calculating wages?
Time Rates - employees paid according to a set £ per hr or a fixed salary
Piece Rate - paid on the basis of output rather than time
Bonus - workers receive extra wages in addition to normal wages if business does well
Overtime - payment for any extra hours worked by employees
How do you calculate the Cost of Production for a Manufacturing Account
Add Prime Cost + Overheads
What is WIP and where would you see it recorded in a Manufacturing Account
WIP = work in progress
Closing WIP from one year will become opening WIP for next
Shown as an adjustment at end of the Manufacturing Account
What is the Factory Cost of Production
The cost of making the goods that been transferred into warehouse for sale
What is an Indirect Cost
One which cannot be directly identified with any particular product (overheads e.g. Manager's wages, rent, rates, equipment depreciation
What does a Manufacturing Account show?
Direct Costs
+
Indirect Factory Overheads
=
Manufacturing cost
What are raw materials
raw materials are components and ingredients used to manufacture the product
How does the accountant work out the value of stocks used or consumed during the year?
Cost of Raw Materials Consumed
=
Opening Stock of Raw Materials
+
Purchases of Raw Materials
-
Closing Stock of Raw Materials
What is a Prepayment?
An expense that has been paid during the year for something that is needed the following year
What is an Accrual?
An expense that was meant to be paid during the financial year but the bill has not been received and it won't be paid until after the year end
How do you display prepayments and accruals?
Accruals Prepayments
+ - End of Year
- + Start of Year
What is Depreciation?
the fall in value of a Fixed Asset (something the business owns for a long period of time).

The yearly drop in factory machinery value is treated as an Indirect Factory Overhead
How can you tell if a business has cost effective production processes?
Manufacturing profit = Factory cost of Production is less than Market value of the Goods

Note - A manufacturing loss is when the cost of production is greater than the market value of the goods
What are two ways of working out Depreciation?
Straight Line Depreciation
Reducing Balance Depreciation
What is Straight Line Depreciation method?
assumes that an asset falls in value by the same amount each year it is worked out by taking a given percentage of the cost of the asset
What is the Diminishing Balance Method of Depreciation?
assumes that an asset falls more in the first few years and gradually falls by less and less. it is worked out by taking a given percentage of the current value of the asset (cost less provision for depreciation to date)
Where do you show the Gross Profit of the business?
Trading Account
How do you work out the Gross Profit of the business?
Sales less Cost of Goods Sold
Opening Stock of Finished Goods
Add Market Value of Finished Goods
Add Purchases of Finished Goods
Less Closing Stock of Finished Goods
How do you work out the Net Profit of a business?
Total Gross Profit £

Add any other income
Rent £
commission £ £

Less Expenses
Admin expenses £
Finance expenses £
Selling Expenses £ £

NET PROFIT £