Leaving Certificate Business Notes: Enterprise

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Key Lessons: Leaving Certificate Accounting Notes – Costing

• Overhead Absorption Rates: Overhead absorption rates are based on budgeted, not actual costs, as businesses need to calculate product costs and set prices before actual costs are known.

• Under- and Over-Absorption of Overheads

  • Under-absorption occurs when actual overheads exceed budgeted costs, often due to increased labor hours, higher fuel or material costs, or unforeseen expenses.

  • Over-absorption happens when budgeted costs are higher than actual costs, often due to lower-than-expected expenses.

• Marginal vs. Absorption Costing

  • Marginal costing excludes fixed costs from product costs, valuing closing stock lower.

  • Absorption costing includes fixed costs, aligning with standard accounting practices and matching costs with revenues.

• Step Fixed Costs: Step fixed costs remain constant within a specific range of activity but increase in steps when production levels surpass that range (e.g., renting additional factory space as production grows).

• Role of the Management Accountant: Management accountants provide essential data for planning, controlling, and decision-making, including cost analysis, budgeting, and valuing closing stock for financial statements.

Important Takeaways: Leaving Certificate Accounting – Costing

• Overhead Absorption Rates and Budgeting: Overhead absorption rates are based on budgeted figures to allow businesses to set product prices and calculate costs ahead of knowing actual expenses.

• Managing Over- and Under-Absorption

  • Under-absorption happens when actual costs exceed budgeted costs, often due to unexpected increases in fuel, labor, or insurance expenses.

  • Over-absorption occurs when budgeted costs are higher than actual costs, typically resulting from cost-saving measures.

• Marginal vs. Absorption Costing: Marginal costing excludes fixed costs in product valuation, while absorption costing includes them, making absorption costing the preferred method for financial accounting as it aligns with standard practices.

• Step Fixed Costs: Step fixed costs increase in increments when production levels exceed a specific range, reflecting the need for additional resources, like more space or machinery.

• Role of Costing in Decision-Making: Costing supports effective budgeting, pricing, and profitability analysis, ensuring businesses can manage expenses and align costs with revenues for long-term success.

Keywords: Leaving Certificate study notes, Leaving Certificate Business Studies notes, enterprise, entrepreneurship, business planning, startup strategies, business management, innovation, business growth, enterprise development, market analysis.