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8 Cards in this Set
- Front
- Back
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What are cost units?
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Cost units are units of output in which costs can be charged.
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What is a cost centre?
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Cost centres are sections of a business to which costs can be charged.
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What is absorption costing?
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Absorption costing is a costing method which absorbs the total costs of the whole business into each cost unit.
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How is the absorption cost calculated?
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Direct materials
+ direct labour + direct expenses + overheads = Absorption cost |
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What is activity based costing?
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Activity based costing is a costing method which charges overhead to output on the basis of activities.
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What is a cost driver?
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Cost drivers are activities which cause costs to be incurred.
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What is a cost pool?
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Cost pools are groups of overhead costs that are incurred by the same activity.
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What are six advantages of using activity based costing?
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Cost information is more accurate because cost drivers are used to identify the activity which causes costs to be incurred. It is more objective as it identity's the overhead costs relating to different products. Gives a good understanding of why costs are incurred and how they'll be altered by changes in production. More accurate calculation of selling price because overhead costs are analysed to the products which use the activity. May identify areas of inefficiency. Management decision-making is improved. ABC is appropriate for capital-intensive industries where overheads are high and complex.
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