Archive about 'Cost Concepts and Classifications'

Introduction to Basic Cost Concepts

Question:
Generally when the term “ Cost” is mentioned, it encompassed a wide ranging meanings and also that this term is being used in different situations.
So can we basically classify certain BASIC COST TERMS that are commonly used in the cost and management accounting books?

Answer:
As earlier mentioned, the term “ COST” is a wide ranging word [...]

What Are The Purpose Of A Cost And Management Accounting System?

I have been asked by Management to set up a good Cost And Management Accounting System but the first thing I have to understand are or is the main purposes/objectives of having a Cost And Management Accounting System?

Answer:
The system should at least meeting the following requirements:
· To allocate costs between cost of goods sold and [...]

List Of Topics Under The Heading: Cost Concepts & Classifications

Click to the respective topic on Cost Concepts And Classifications:

Content Page On COST CONCEPTS & CLASSIFICATIONS:

1.0

What is costing and reasons for its importance

2.0

Difference between Cost Unit And Cost Centre

3.0

Costing Principles- Costs Classification

4.0

Difference Between Product and Period Costs

5.0

Difference between Direct and Indirect Costs

6.0

Cost Behaviors – Variable, Fixed and Mixed Costs

7.0

The difference between Allocation and Apportionment

8.0

The Objectives [...]

Factors To Consider When Installing a Cost Accounting System

Some of the following factors to consider when installing a Cost Accounting system:

1.0 The objectives and expectations of managements for installing it should be identified. How simple or complex will depends on the objectives of management

2.0 The need to properly understand the nature of business, its technical aspects, products, process flow & [...]

Factors To Consider When Designing A Cost Accounting System

In order to have a good Cost Accounting System, during the stage of designing it, we should consider the following:

The need to have a thorough understanding of the Organization structure, manufacturing process & procedures, selling and distribution process and types of cost information required by the company’s business

The need to select a suitable costing technique [...]

Essential Features Of A Good Costing System

Append below are some of the essential features of a good costing Accounting system:

1.0 The Cost Accounting system should be simple and customized to meet the business requirements.

2.0 The method of costing should be suitable to the industry and serve its purpose

3.0 The system should consider the organizational structure of the business and it should be designed [...]

Objectives Of Setting Up/Introducing A Cost Accounting System

The following are some of the objectives of setting up a Cost Accounting System whether in a manufacturing or non manufacturing company:

1.0 Ascertainment of cost of each item
2.0 Determination of selling price of every item
3.0 Cost Control and Cost Reduction
4.0 Ascertainment of profit of each activity
5.0 Assisting management in decision making like establishing standards to check [...]

What Is The Difference Between Allocation And Apportionment?

This article differentiate allocation and apportionment of overheads:

Allocation Of Overheads:

Is to directly and specifically charge the overheads to the cost center.
Two basic conditions exist before we can consider it as allocation:

The cost center must have caused the overhead to be incurred and
The [...]

Cost Behaviours:Define Variable, Fixed And Mixed Cost

VARIABLE COSTS:

Those cost that change in total in direct proportion to CHANGES IN LEVEL OF ACTIVITY. An increase/(decrease) in activity brings proportional increase/(decrease) in total variable costs.
Examples like direct material costs and direct labour costs which increase in proportionate to the increase in [...]

Difference Between Direct And Indirect Costs

Direct costs:

Those costs that are traced to a specific cost objective like product/service.

Indirect costs:

Those costs that CANNOT be directly traceable to a particular cost objective and incurred for multiple cost objectives.
Can also be called Common Cost.

Salient Point:

Direct costs are ALLOCATED to [...]