Archive about 'Cost Concepts and Classifications'

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 […]

Cost Concepts And Classification : Difference between Product & Period Costs

Product costs:

Those costs that are identified with goods purchased or produced for resale. In manufacturing firm, these costs are attached to the product and included in stock valuation for finished goods or work-in-progress, until they are sold.

Period costs:

Those costs that are identified with a SPECIFIC […]

Costing Principles: Costs Classification

The fundamental principle of classification of cost depends on the purpose for which costs are required.
 
Cost can be classified as follows:

(1) By Nature

Based on nature of major costs like material, labour and other expenses.
 
Material can be sub-classified into:
Raw material, semi-finished materials, components, consumables, maintenance materials
 
 
Labour can be sub-classified into:
Maintenance, supervision, clerical […]

Costing Principles: Cost Unit Versus Cost Centre

What is the difference between cost unit and cost centre?

A Cost Unit

Is the quantitative unit of product or service in relation to which costs can be ascertained.

Examples:
Jobs, contracts, kilowatt hours, cost per patient day

A Cost Centre

Is “a location, person or item of equipment ( or group of these) in respect of […]