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A cost that are not affected in total by the level of activity, but remains the same.
According to this, when activity level increase the Fixed Cost per Unit will reduce.
Variable Cost
A cost that change in direct proportion to the level of activity. Variable Cost per Unit
is constant so if activity level increases total variable cost will increase.
Semi-variable Cost
A cost which have both fixed and variable elements. In this case, if activity levels
increase; cost per unit will reduce but not in proportion to the activity level.
Step-cost /Stepped Fixed Cost:
Constant in one range of activity level and then change and again constant in another
level.
SVIS + PCUR
AVCO = ─────────
QAS+QR
EOQ:
EOQ =
2C DO
C H
Min.SL = Re-order Level ─ (Average Demand for the item each day/month × Average length of lead time)
Labor Turnover:
Average annual number of leavers who are replaced
LT = −−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−− × 100%
Average annual number of employee
Efficiency Ratio:
Actual output measured in standard hours
ER = −−−−−−−−−−−−−−−−−−−−−−−−−−−−−− × 100 %
Actual production hours
Activity/Production/Volume Ratio:
Actual output measured in standard hours
AR = −−−−−−−−−−−−−−−−−−−−−−−−−−−−−− 100%
Budgeted Production Hours
Depreciation
Machine Hour method:
Cost less residual Value
MHM = −−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Expected total number of hours of use over the life of the asset
Abnormal Gain:
CVP:
C/S ratio:
Contribution per unit
C/S ratio = ───────────
Sales price per unit
Why CVP:
Estimating future profit
Break-even point of sale
Margin of safety in the budget
Volume of sales required to achieve target profit
Deciding on a selling price for a product
Margin of safety:
Prime Cost = all direct cost ( direct labor + direct material + direct expense )
Production Overhead = all indirect cost ( Indirect labor + material + expense )
According to High-Low method:
Overhead = Fixed cost + Variable cost of new events.
Conversion Cost:
Production cost without direct material. Simply, direct labor cost plus production
overhead cost.
Idle Time:
eg. Budgeted production hour is 3300 where idle time is 25%. In this case calculation
should be –
25 25
3300 × 25% = 3300 × = 3300 × = 1100 (Paid hour).
100 − 25 75
Idle time is an overhead cost.
Overtime:
Overtime is an indirect cost as well as production overhead. So basic salary is direct
cost. But when overtime is worked specifically for a customer, Overtime is treated as
direct labor cost.
Overhead Costs:
Overhead Allocation:
Is a process of charging a whole item of cost to a cost centre.
Absorption Costing:
Is a method of calculating a cost per cost unit that includes direct costs and a share of
overhead costs. So absorption costing may concerned with variable & fixed costs.
Overhead Absorption Calculation: among the machine hour, labor hour and unit of
production; which is the big by rating that will be the base method of calculating
overhead absorption rate.
Stock Valuation: (in marginal costing): Prime cost (all direct cost) + variable
overhead.
Job Costing:
Is for special product order from customer.
Process Costing:
In process costing normal losses is valued on its scrap value.