ACC210 Study Guide - Final Guide: Variable Cost, Accounts Payable, Fixed Cost
Management Accounting Study
Costing methods:
Direct material – consumed in the manufacturing process of the product. Variable Cost
Direct Labour – wages and labour hrs
Manufacturing Over Heads – everything in the cost but material and labour. Examples include,
depreciation, rent, equipment, everything that happens in the factory i.e. electricity, oil, indirect
factory supplies. Indirect material and labour and OH
BOM: Bill of materials useful for standard costing system
Job cost sheet: includes the direct materials, direct labour and overhead costs.
Over Heads – have to allocate as its impossible to direct it at one single job or product. Assigned to
direct labour hrs or machine hrs.
Estimated total manufacturing OH costs / estimated total units base(activity) = predetermined OH
rate (+ variable OH rate per if there)
Job Costing used in manufacturing where many different products or batches are done in each
period which are different i.e. furniture manufacturing, job cost sheet is the key document and unit
costs are determined by the jobs. This is also undertaken in service offices such as accountants and
lawyers.
Process Costing single homogenous products running long periods of time i.e. brick or cement
factory . Costs are accumulated by the department.
1. Analyse the physical flow of units
2. Calculate the equivalent units
3. Calculate unit costs (FIFO and Average method)
4. Analyse total costs
physical flow equivalent units transfers out + ending inventory
Equivalent units = Number of physical units × Percentage of completion.
Operation Costing Operation costing is a mix of job costing and process costing, and is used in
either of the following situations:
A product initially uses different raw materials, and is then finished using a common process
that is the same for a group of products; or
A product initially has identical processing for a group of products, and is then finished using
more product-specific procedures.
Joint Costing Joint cost is the manufacturing cost incurred on a joint production process which
takes common inputs but simultaneously produces multiple products called joint-products
relative sales method sale value of product/sales value of total production x total joint costs
NetRelisableValue (products need further processing)= estimates sales values – estimated cost to
further process and sell
Period costs costs other than product costs excluding OVERHEAD
by-products products incidentally made in the production of making something else
Subsidary cost ledger:
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DR and CR accounts
Purchase of direct materials – direct/indirect
Raw Materials DR
Acc Payable CR
Use of raw materials/return
When direct materials are issued to production: Dr WIP; Cr Materials Control.
Reverse when materials are returned to store: Dr Materials Control; Cr WIP.
Use of in-direct materials
Manufacturing OverHead DR
Manufacturing Supplies inventory (raw materials)CR
Labour hours/cost (Direct)
Charging direct labour to jobs -
Work In Process inventory (WIP) DR
Manufacturing Overhead DR
Wages Payable CR
(Indirect)
Manufacturing Overhead DR
Wages Payable CR
Manufacturing Overhead Costs
Dr Manufacturing Over Head
Cr Accounts payable
Cost of Goods Manufactured
Dr Finished Goods
Cr Work in Process
Cost of Goods Sold
Dr COGS
Cr Finished goods
The application of manufacturing OH – clearing account(control account) – reconciliation between
the actual over head and the over head allocated
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Product Costing:
Product costs – costs assigned to goods
period costs – costs identified at the period they are incurred eg. Electricity used for variable OH
costs in variable costing
Variable costs – costs the vary in relation to changes in activity. Referred to in dollar amounts
(marginal)
Fixed costs – costs not affected by changed in activity eg. rent/level of activity. decrease with
increased levels of production
direct and indirect – must first relate to a segment the business i.e. product line, division. Direct cost
is traced to a specific product or segment. Indirect is a cost incurred and must be allocated in order
to be assigned to a product or department
Differential cost/marginal cost – adding one more unit to a product or price = increase. Or the
decrease due to a manufacturing/product/price
Prime Cost = Direct Materials + Direct Labour
Conversion Cost = Direct Labour + Manufacturing Overhead
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Document Summary
Direct material consumed in the manufacturing process of the product. Manufacturing over heads everything in the cost but material and labour. Examples include, depreciation, rent, equipment, everything that happens in the factory i. e. electricity, oil, indirect factory supplies. Bom: bill of materials useful for standard costing system. Job cost sheet: includes the direct materials, direct labour and overhead costs. Over heads have to allocate as its impossible to direct it at one single job or product. Assigned to direct labour hrs or machine hrs. Estimated total manufacturing oh costs / estimated total units base(activity) = predetermined oh rate (+ variable oh rate per if there) Job costing used in manufacturing where many different products or batches are done in each period which are different i. e. furniture manufacturing, job cost sheet is the key document and unit costs are determined by the jobs. This is also undertaken in service offices such as accountants and lawyers.
