Costing systems
Costing Systems
Introduction to Costing Systems
- Understand the importance of costing systems in managing business finance.
- Recognise the different types of costing systems, including job costing, batch costing, contract costing, and process costing.
- Differentiate between direct costs and indirect costs, and understand how they are treated in costing systems.
Job Costing
- Understand the meaning of job costing, and when it is used.
- Identify the key components involved in job costing including direct materials, direct labour and overheads.
- Understand the importance of costing sheets in job costing.
Batch Costing
- Get familiarised with the concept of batch costing, and when it is appropriate to use.
- Recognise the steps involved in the calculation of batch costs.
- Learn how to account for closing stock of partly finished batches.
Contract Costing
- Understand the principle of contract costing and when it is used.
- Know how to calculate contract costs including overheads and profit on uncompleted contracts.
- Learn about the principle of profit recognition in contract costing and the stage of completion concept.
Process Costing
- Recognise what process costing is and when it should be utilised.
- Understand the calculations involved in process costing, including averaging methods.
- Learn how to deal with normal and abnormal losses as well as gains in output.
Application of Overheads
- Understand the process of overhead apportionment and overhead absorption in various costing systems.
- Recognise the principles of overhead absorption rates (OARs) and the importance of selecting an appropriate basis for overhead absorption.
- Comprehend the treatment of under-applied or over-applied overheads.
Cost Behaviour and Break-even Analysis
- Learn about the concepts of variable, fixed and semi-variable costs, and how they relate to cost behaviour.
- Understand the concept of the contribution margin and how it is used in break-even analysis.
- Learn how to create and interpret a break-even chart and use it to calculate margin of safety, breakeven point and profit/loss at different levels of output.
Standard Costing and Variances
- Know what standard costing involves and why it is used in business.
- Understand the calculation and interpretation of different variances such as material variances, labour variances and overhead variances.
- Comprehend how to analyse and report variances, and the usefulness of such analysis to decision making within a firm.