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18 Cards in this Set
- Front
- Back
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Purpose of costing (4) |
Inventory valuation Record costs Price products Decision making |
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Alternative terms for semi-variable costs (3) |
Semi-fixed Hybrid Mixed |
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Overhead absorption procedure (3) |
Allocation Apportionment Absorption |
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Advantages of absorbing costing (5) |
All costs are included in product cost Follows accruals concept Includes production overheads in inventory valuation Variance analysis is useful for identifying inefficiencies It's appropriate to identify overhead costs with the product that causes them |
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Disadvantages of absorption costing (2) |
Subjective/arbitrary Profits vary with inventory value |
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Marginal costing = |
Charges products with variable costs only |
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Advantages of marginal costing (3) |
Simpler More relevant to short term decision making Avoids subjectivity |
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Disadvantages of marginal costing (2) |
Not useful for measuring long-term profitability/costs Labour could be considered a fixed cost when salaried |
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Cost-plus pricing = |
Adding a mark-up to the total cost of the product |
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Factors influencing mark-up (4) |
Price customers are willing to pay Level of competition Org objectives Level of capacity utilisation |
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Full cost-plus pricing = |
Cost-plus pricing, including admin/selling costs |
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Advantages of full cost pricing (4) |
Profit is guaranteed if budgeted sales are achieved Useful in 'contract costing' industries where fixed costs are low Quick and easy to employ Justifies price increases |
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Disadvantages of full cost pricing (3) |
Apportionment is subjective Overheads will not be recovered if volume is lower than budgeted May not take account of competition |
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Marginal cost-plus pricing |
Marginal cost plus a mark-up |
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Advantages of marginal cost pricing (4) |
Just as accurate as full cost pricing Gives the option of pricing below total cost when demand is low Particularly useful for one-off contracts Recognises scarce/bottleneck resources |
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Disadvantages of marginal cost pricing (2) |
Ignores competition and customers Mark-up is arbitrary as it must include a subjective element |
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Target return on capital = |
Mark-up set at a level that provides a target return on investment made |
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Profit margin pricing formula |
Total cost/(1 - required margin) |
