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www.rmjpilondonbusinessacademy.com 01293 763266 / 0208 133 8243 1 Tutor: Salina Loum AAT Level 2 Basic Costing This Unit will be divided into 5 lessons:

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Presentation on theme: "www.rmjpilondonbusinessacademy.com 01293 763266 / 0208 133 8243 1 Tutor: Salina Loum AAT Level 2 Basic Costing This Unit will be divided into 5 lessons:"— Presentation transcript:

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2 www.rmjpilondonbusinessacademy.com 01293 763266 / 0208 133 8243 1 Tutor: Salina Loum AAT Level 2 Basic Costing This Unit will be divided into 5 lessons: Lesson 1: Cost Classification and Coding of Costs & Income Lesson 2: Materials and Inventory Lesson 3: Labour Costs Lesson 4: Budgeting and Spreadsheets Lesson 5: Revision and Exam Practice

3 www.rmjpilondonbusinessacademy.com2 Unit Objectives: To understand the cost recording system within an organisation To be able to use the cost recording system to record or extract data To be able to use spreadsheets to provide information on actual and budgeted income and expenditure.

4 Lesson 2 www.rmjpilondonbusinessacademy.com3 Materials Work in Progress Finished Goods

5 www.rmjpilondonbusinessacademy.com4 Definitions: Materials = direct/indirect Work In Progress = units which are not complete at the end of an accounting period Finished Goods = units which are fully complete and ready for sale

6 www.rmjpilondonbusinessacademy.com5 Cost of Sales Inventory – profit and loss account Calculation: Opening Inventory X Add PurchasesX Less Closing Stock (X) Cost of Goods SoldX Closing Inventory Forms part of the balance sheet as an asset

7 www.rmjpilondonbusinessacademy.com6 Inventory Valuation FIFO LIFO Weighted Average FIFOLIFO Weighted Average Based on oldest purchase cost Based on newest purchase cost Based on average of the cost of purchases

8 www.rmjpilondonbusinessacademy.com7 Valuation of WIP and Finished Goods: Value direct costs such as raw materials and direct labour. This can be done by looking at supplier invoices and time sheets Apply any overheads. It may be necessary to apportion costs by averaging overheads over units or absorbing them into units. This is relevant where the company makes more than one product. Calculation of Overheads: Unit basis – each unit contains an equal share of the overheads Labour rate basis – overheads are absorbed on the basis of a rate per direct labour hour

9 www.rmjpilondonbusinessacademy.com8 Manufacturing Account Opening Inventory of Raw Materials100 Purchases of Raw Materials100 Closing Inventory of Raw Materials(100) Direct Materials Used200 Direct Labour200 Direct Costs400 Manufacturing Overheads600 Manufacturing Cost1000 Opening Inventory of WIP3000 Closing Inventory of WIP(2000) Cost of Goods Manufactured2000 Opening Inventory of Finished Goods5000 Closing Inventory of Finished Goods(6000) COST OF GOODS SOLD1000

10 www.rmjpilondonbusinessacademy.com9 Purchasing and Internal Controls Purchase Order System Bin Cards Stores Ledger Control

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