Management Accounting: Absorption Costing and Unit Costs

What is the main reason why an organization would want to know the unit cost of a product or service?

In the context of 2B4 Ltd, what are some of the other production costs for making chairs and tables?

What is the total amount spent on glue and varnish for 2B4 Ltd's production per year?

How much does a table cost to produce in terms of direct labor?

What are the components of the total cost of a product for 2B4 Ltd?

Based on the information provided, is it possible to definitively calculate the cost of a table?

What is a cost that can be specifically and exclusively identified with a particular cost object?

Which method of costing is used where masses of identical units are produced from a shared process?

What is the aim of absorption costing?

In full costing, what does the full cost per unit equal to?

What is used where each unit or batch of output is unique?

What type of cost cannot be specifically and exclusively identified with a particular cost object?

What is necessary in process costing when masses of identical units are produced from a shared process?

'Cost tracing' refers to the process of:

'Cost allocation' involves:

Costing in 2B4 Ltd

Knowing the unit cost of a product or service is essential for an organization to determine the profitability of its products and make informed decisions.

Production Costs in 2B4 Ltd

Production costs for making chairs and tables in 2B4 Ltd include glue, varnish, and direct labor.

Cost of Production

The total amount spent on glue and varnish for 2B4 Ltd's production per year is not specified.
The cost of a table to produce in terms of direct labor is also not specified.

Components of Total Cost

The components of the total cost of a product for 2B4 Ltd include direct labor, glue, and varnish.

Cost Calculation

It is not possible to definitively calculate the cost of a table based on the provided information.

Cost Types

A direct cost is a cost that can be specifically and exclusively identified with a particular cost object.
An indirect cost is a type of cost that cannot be specifically and exclusively identified with a particular cost object.

Costing Methods

Mass production involves producing masses of identical units from a shared process, and process costing is the method used in this scenario.
The aim of absorption costing is to allocate all costs, including fixed overheads, to cost units.
Job costing is used where each unit or batch of output is unique.

Full Costing

In full costing, the full cost per unit equals the sum of direct and indirect costs.

Costing Processes

Cost tracing refers to the process of assigning direct costs to a particular cost object.
Cost allocation involves assigning indirect costs to a particular cost object.

This session covers the concept of absorption costing, as well as the importance of understanding unit costs in management accounting. Topics include the need for unit costs and how they help in decision making and inventory valuation.