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Questions and Answers
What is the term for the loss that exceeds the expected normal loss in a production process?
What is the term for the loss that exceeds the expected normal loss in a production process?
What is the purpose of understanding costing and costing techniques?
What is the purpose of understanding costing and costing techniques?
What is the term for materials or products that are discarded during the production process and have no value?
What is the term for materials or products that are discarded during the production process and have no value?
What is the benefit of proper management of scrap?
What is the benefit of proper management of scrap?
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What is the term for the cost of normal loss in a production process?
What is the term for the cost of normal loss in a production process?
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What is the purpose of job costing?
What is the purpose of job costing?
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What is the term for materials or by-products that are discarded during the production process but have some residual value?
What is the term for materials or by-products that are discarded during the production process but have some residual value?
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What is the term for the loss that is expected to occur in a production process?
What is the term for the loss that is expected to occur in a production process?
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What is the benefit of accurate costing?
What is the benefit of accurate costing?
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What is the purpose of process costing?
What is the purpose of process costing?
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What is the primary purpose of costing in an organization?
What is the primary purpose of costing in an organization?
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What is the role of costing in budgeting and forecasting?
What is the role of costing in budgeting and forecasting?
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What is the main purpose of inventory valuation?
What is the main purpose of inventory valuation?
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What is the main element of cost that includes indirect materials and indirect labor?
What is the main element of cost that includes indirect materials and indirect labor?
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What type of costing is used in industries where production is carried out based on specific customer orders?
What type of costing is used in industries where production is carried out based on specific customer orders?
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What is the characteristic of Job Costing that makes it suitable for industries such as construction and shipbuilding?
What is the characteristic of Job Costing that makes it suitable for industries such as construction and shipbuilding?
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What type of costing is used in industries where production is continuous, and products pass through multiple processes?
What type of costing is used in industries where production is continuous, and products pass through multiple processes?
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What is the characteristic of Process Costing that makes it suitable for industries such as chemicals and food processing?
What is the characteristic of Process Costing that makes it suitable for industries such as chemicals and food processing?
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What is the type of loss that is considered a part of the cost of production?
What is the type of loss that is considered a part of the cost of production?
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What is the purpose of costing information in decision-making?
What is the purpose of costing information in decision-making?
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What is the primary objective of costing in an organization?
What is the primary objective of costing in an organization?
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What is the main purpose of costing techniques in an organization?
What is the main purpose of costing techniques in an organization?
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What is the process of determining the cost of a particular product or service?
What is the process of determining the cost of a particular product or service?
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What is the role of costing in setting prices?
What is the role of costing in setting prices?
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What is the purpose of analyzing the cost structure of a product or service?
What is the purpose of analyzing the cost structure of a product or service?
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What is the primary objective of job costing?
What is the primary objective of job costing?
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What is the purpose of standard costing?
What is the purpose of standard costing?
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What is the role of costing in profitability analysis?
What is the role of costing in profitability analysis?
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What is the purpose of activity-based costing?
What is the purpose of activity-based costing?
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What is the primary objective of process costing?
What is the primary objective of process costing?
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Study Notes
Introduction to Costing and Costing Techniques
- Costing is the process of determining the cost of a particular product or service.
- Costing techniques are methods used to ascertain the cost of products or services.
- Common costing techniques include job costing, process costing, activity-based costing, and standard costing.
Objectives of Costing
- Cost control: to control expenses by identifying and analyzing cost components.
- Pricing decisions: to set competitive prices that cover costs and provide a reasonable profit margin.
- Profitability analysis: to analyze the profitability of different products, services, or departments.
- Budgeting and forecasting: to provide a basis for budget estimates and financial forecasts.
- Inventory valuation: to accurately value inventory for financial reporting.
- Decision making: to support various management decisions.
Elements of Costs
- Material costs: costs of raw materials and components used in production.
- Labor costs: wages and salaries paid to employees involved in production.
- Overhead costs: all costs other than direct materials and direct labor.
Components of Cost
- Prime cost: sum of direct materials and direct labor costs.
- Factory cost: prime cost plus manufacturing overheads.
- Cost of production: factory cost plus administrative overheads.
- Total cost: cost of production plus selling and distribution overheads.
Job Costing
- Used to ascertain the cost of specific jobs or orders.
- Suitable for industries where production is based on specific customer orders.
- Features of job costing:
- Each job is treated as a separate entity.
- Direct costs are easily traceable to specific jobs.
- Overheads are allocated to jobs based on predetermined rates or actual usage.
- Provides detailed cost information for each job.
Process Costing
- Used in industries where production is continuous and products pass through multiple processes.
- Suitable for industries such as chemicals, textiles, and food processing.
- Features of process costing:
- Costs are accumulated for each process or stage of production.
- Average costs are calculated by dividing the total costs of each process by the number of units produced.
- Ideal for homogeneous products.
- Provides information on the cost of each process.
Normal and Abnormal Losses in Process Costing
- Normal loss: expected or unavoidable loss that occurs during the production process.
- Abnormal loss: loss that exceeds the expected normal loss.
- Normal loss is absorbed by the good units produced, while abnormal loss is treated separately and recorded as a separate expense.
Waste and Scrap
- Waste: materials or products that are discarded during the production process and have no value.
- Scrap: materials or by-products that are discarded during the production process but have some residual value.
- Proper management of scrap can help in recovering some of the costs and reducing overall production expenses.
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Description
Test your understanding of costing concepts, including definitions, objectives, elements of costs, and techniques like job costing and process costing.
