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11 Cards in this Set
- Front
- Back
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Differentiate between a cost centre and a profit centre |
A cost centre is a section of a business such as department to which costs can be allocated or charged Profit centre is a certain if a business to which both costs, revenues can be allocated - so profit can be calculated |
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State one reason why it is difficult to allocated overheads to products or cost centres |
It is never clears, especially with a business producing several products or service and with several departments, what a “proportion” of each overhead should be allocated to each product or department |
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Why would a business making and selling just one type of proxy have no problems with allocating overheads |
The single product will - from the revenue earned from it- will have to cover all overheads for the business to make profit |
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Def of full costing + State one advantage of full costing |
Full costing is a method of costing in which all fixed and variable costs are allocated to products, services. This is an advantages because it forces managers to consider the importance of overhead costs |
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What is meant by contribution cost |
This is a costing methods that only considers it’s direct costs- and combatting these revenue to allow contribution to be assed |
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How can selling a product for less than its full cost add to the profit of the business |
If it makes a contribution and this can be used to help pay overheads and contribute to assess |
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Why might a business not decide to outsource production of a component even though it is being offere d by a price less than the full cost of making it within the business |
If the overhead costs allocated to this product still have to be paid by the - so the valsa will only be direct |
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Why might a business decide to continue to make a product which makes a loss when using full costing |
It makes a contribution |
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Why are overhead cost difficult to allocate to a new business |
This is because they are not easy identifiable as direct cost |
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What are the limitations to attempt to allocate overhead costs |
May be inaccurate allocation of resouces. If inaccurate, then inappropriate decisions might be made in the basis of this allocation |
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What do costing do we do when analysis whether to accept a contract |
For this type of decision, we ignore overhead costs. As they are indirect, they will not have been incurred as a result of accepting this contract and they will b |
