9706 · 2.2.1
Costing applications flashcards
Revision flashcards for Cambridge 9706 Costing applications (syllabus 2.2.1). Flip, recall, then mark a real past-paper question.
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Unit costing used when?
Mass production of identical items in a continuous process (e.g. chemicals, bricks, flour).
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Job costing used when?
For unique, custom, or bespoke orders where each job is different (e.g., furniture, printing, construction).
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What is batch costing?
A costing method for a group (batch) of similar jobs. The total cost of the batch is found, then divided by the number of units to get a cost per unit.
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What is a cost unit?
A unit of product or service to which costs can be assigned (e.g., a litre of paint, Job No. 123, Batch B78).
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How is a quotation price calculated?
By adding a desired profit to the total estimated cost of a job. The profit can be a fixed amount, a percentage mark-up on cost, or a percentage margin on the selling price.
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What is a job cost sheet?
A primary document used in job costing to record and accumulate all the direct materials, direct labour, and absorbed overheads for a specific job.
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What is the primary purpose of a job cost sheet?
To accumulate all the costs (direct materials, direct labour, direct expenses, and absorbed production overheads) associated with a specific job, in order to determine its total cost and profitability.
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How is the cost per unit calculated in batch costing?
The total cost of the entire batch is calculated first. This total cost is then divided by the number of finished units produced in that batch.
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What is 'Specific Order Costing'?
A costing principle used for work that consists of separately identifiable jobs or batches, each authorised by a specific customer order. It includes both job costing and batch costing.
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Give two examples of industries that would use job costing.
Construction (e.g., building a specific house), shipbuilding, bespoke tailoring, audit firms, or advertising agencies.
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How are production overheads assigned to a specific job?
They are absorbed into the job cost using a predetermined overhead absorption rate (OAR). The OAR is multiplied by the actual amount of the absorption base (e.g., direct labour hours) used by the job.
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What is the formula for a predetermined overhead absorption rate (OAR)?
OAR = Budgeted Total Production Overheads / Budgeted Level of Activity (e.g., labour hours, machine hours).
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What is the difference between a profit mark-up and a profit margin?
Mark-up is profit as a percentage of cost (Profit / Cost). Margin is profit as a percentage of selling price (Profit / Selling Price).
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Give an example of a direct expense that might be included on a job cost sheet.
The hire of special equipment specifically for one job, or the cost of a specific design patent purchased for a single customer order.
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Why is a predetermined OAR used instead of actual overheads?
To allow job costs to be calculated as soon as the job is finished, rather than waiting until the end of the accounting period when actual overheads are known. It also smooths out fluctuations in monthly overhead costs.