What Are The Key Factors/Processes For The Successful Establishment Of Budgets: There should a clear effective communication of the company’s objectives and strategy to those responsible for preparing budgets.This is quite critical otherwise there is no proper focus on the overall company’s goal like achieving X revenue or XX profitability and others.The strategy document should … Read more
What Are The Objectives Of Budgeting? · Budget provides the yardstick against which future results can be compared; · With the establishment of the budget, action(s) can be taken by management if there are any material variances against budget; · Budgets enable management to plan and anticipate in areas of adequacy in … Read more
WEIGHTED AVERAGE method uses the weighted average value for all issues. This is done by dividing the total cost of materials by their quantities. A new issue price is calculated each time new material is received. Illustration: In March 2006, assuming that there is no opening stock and the following reflects the stock movement: Mar … Read more
LIFO method assumes that the last items of stocks purchased are the first to be issued or sold. The valuation of closing stock is based on the cost of the earliest purchases. Illustration: In March 2006, assuming that there is no opening stock and the following reflects the stock movement: Mar 2 Receipt 100 units … Read more
Basically, FIFO uses the price of the FIRST batch purchased for all issues until stock of that batch is exhausted. Then the price of the next batch received is used and so on. Illustration: Assuming there is no opening stock and the following reflects the stock movement: Mar 2 Receipt 100 units @ $1.00 = … Read more
PERPETUAL INVENTORY SYSTEM A method of controlling physical stock level by ensuring the amount of stock level of every item could be accounted at all times. This normally involves detailed recording of all receipts, issues and running balances for each item of stock. Due to the detailed recording of all in and out, management does … Read more
Whether in cost or managerial accounting, we need to understand what are relevant cost, criteria or nature and the benefits or usefulness of understanding relevant costs in decision making: RELEVANT COSTS Management needs sufficient and relevant information make the correct decisions. Hence, the need to understand relevant costs. A relevant cost relates to future expected … Read more
In cost accounting, we need to understand cost behaviors of :- 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 … Read more
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 a specific cost objective but Indirect costs or … Read more
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 TIME INTERVAL and not inventoried. They are … Read more