Difference between Spoilage and Defectives in Cost Accounting
In cost accounting, spoilage and defectives refer to different types of quality issues that arise during the production process. While both terms indicate a deviation from the desired product standards, there are distinct differences between spoilage and defectives. Spoilage Spoilage refers to products that do not meet the required specifications or quality standards but cannot […]
A Short Note on the LIFO Method of Inventory Valuation
The LIFO method, or last-in, first-out, is one of the most popular and widely used inventory valuation methods in cost accounting. Under this approach, the cost of goods sold (COGS) and ending inventory are determined based on the assumption that the most recently acquired or produced items are sold or used first. In other words, […]
What is meant by annual holding cost in costing?
Annual Holding Cost or carrying cost refers to the total expense a business incurs to store and manage inventory over a year. It encompasses expenses like warehousing, insurance, depreciation, security, and obsolescence, and the opportunity cost of capital invested in unsold goods. Excessive holding costs can put a strain on a company’s finances, lowering profitability, […]
What is Economic Order Quantity and Its Assumptions?
Economic Order Quantity (EOQ) is a formula used in inventory management to determine the optimal quantity of goods that should be ordered at one time. EOQ takes into account various factors such as ordering costs, carrying costs, and the demand for the product. By finding that sweet spot where the cost of ordering and holding […]