AAT Level 2 Principles of Costing flashcards
AAT Level 2 Principles of Costing · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Prime cost
- The total of direct materials, direct labour and direct expenses incurred in producing a cost unit; it excludes all production overheads.
- Cost centre
- A production or service location, function, activity or item of equipment for which costs are collected and accumulated before being charged to cost units.
- Cost unit
- A unit of product or service to which costs are attributed, such as one chair, one batch of components, or one patient day.
- Direct cost
- A cost that can be traced in full to a specific cost unit or cost centre, such as the raw material used to make one table.
- Production overhead
- Indirect costs of the factory, including indirect materials, indirect labour and indirect expenses such as factory rent, depreciation and supervision.
- Materials requisition note
- A document completed by a production department to request materials from stores; it is a key source of direct material cost data.
- Variable cost
- A cost that changes in total in direct proportion to changes in activity level while remaining constant per unit, such as direct materials.
- Semi-variable cost
- A cost containing both a fixed and a variable element, such as a telephone bill with a standing charge plus call charges based on usage.
- Job costing
- A costing method in which costs are collected separately for each identifiable job or customer order, suitable where products are individually distinguishable.
- Batch costing
- A form of job costing where a group of identical units is one cost unit; unit cost equals total batch cost divided by the number of units in the batch.
- Process costing
- A costing method used in continuous mass production of identical units, where total process costs are averaged over the units produced.
- Marginal costing
- A costing method in which only variable costs are charged to cost units, with fixed costs written off against contribution in the period.
- Absorption costing
- A costing method that includes a share of fixed production overhead in the unit cost, so inventory is valued at full production cost.
- Overhead absorption rate
- Budgeted production overhead divided by budgeted activity level; it is used to charge production overhead into cost units on a fair basis.
- Apportionment of overhead
- Splitting a shared overhead cost between cost centres on a fair basis such as floor area, machine hours or number of employees.
- Service cost centre
- A cost centre that supports production centres, such as maintenance or stores; its costs are reapportioned to production centres before overhead is absorbed.
- FIFO stock valuation
- A method that values issues at the cost of the oldest stock first, leaving closing stock valued at the most recent purchase prices.
- AVCO weighted average
- A method that recalculates a weighted average unit cost after each receipt and values issues and closing stock at that average cost.
- Reorder level
- The stock level at which a new order is placed, calculated as maximum usage multiplied by maximum lead time.
- Free stock
- Stock physically held plus stock on order less stock already allocated to customers; this figure is tested against the reorder level.
- Overtime premium
- The extra amount paid above the basic rate for overtime hours; treated as indirect cost unless a specific customer's request caused the overtime.
- Idle time
- Time paid for when employees are not working productively; it is treated as an indirect labour cost charged to production overhead.
- Gross pay
- Total earnings before deductions, made up of basic pay plus overtime, bonuses and other allowances earned in the period.
- Accrued expense
- An expense that has been incurred in the period but not yet paid or invoiced, so it is added to that period's recorded costs.
- Total cost
- Prime cost plus production overheads plus non-production overheads such as administration, selling and distribution costs.
- Cost per unit
- Total cost incurred divided by the number of units produced or service units provided, allowing comparison with budgeted unit cost.
- Over-absorption of overhead
- Occurs when overhead absorbed into production exceeds the actual overhead incurred, producing a credit balance to be written off.
- Under-absorption of overhead
- Occurs when overhead absorbed into production is less than the actual overhead incurred, so the shortfall is charged as extra cost.
- Period cost
- A non-production cost such as administration or selling expense that is written off in the period incurred and excluded from inventory valuation.
- Cost report
- A statement showing actual costs for a period, classified by cost centre or cost unit, with totals, unit costs and comparison against budget.
- Adverse variance
- A difference where actual cost is higher than budgeted cost, or where actual revenue is lower than budgeted revenue.
- Favourable variance
- A difference where actual cost is lower than budgeted cost, or where actual revenue is higher than budgeted revenue.