Management Accounting (Costing) Flashcards

The purpose of a bill of materials is to:

Answer: List the standard quantities of each material required to produce one unit of output

A bill of materials (BOM) specifies the type and quantity of each raw material and component needed to produce one unit of finished product; it is a key document in standard costing systems.

When a business uses time sheets for labour costs, the primary purpose is to:

Answer: Allocate labour costs to specific jobs, cost centres, or products

Time sheets record the hours worked by employees on each job or activity; they are the basis for allocating direct labour costs to specific jobs or cost centres and for identifying idle time.

Idle time represents:

Answer: Time when workers are paid but not productively engaged in making products

Idle time is the time for which employees are paid but during which no productive work is carried out — for example, waiting for materials or machine breakdowns. It is typically treated as an overhead cost.

In a standard costing system, a standard cost card sets out:

Answer: The budgeted unit cost based on standard quantities and prices

A standard cost card details the standard quantity and price for each element of cost (direct materials, direct labour, variable and fixed overheads) to derive the total standard cost per unit.

The direct labour efficiency variance measures:

Answer: Whether workers took more or less time than standard to produce actual output

Direct labour efficiency variance = (Standard hours for actual output − Actual hours worked) × Standard rate. A favourable variance means workers were faster than standard; adverse means they took longer.

Target profit output is calculated as:

Answer: (Fixed costs + target profit) / contribution per unit

To achieve a target profit: output = (Fixed costs + Target profit) / Contribution per unit. This extends the breakeven calculation by adding the required profit to the fixed cost total.