Management Accounting: Absorption Costing and Unit Costs

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.