What Are Stock Control Cards – Pros and Cons Explained
Stock control is a critical function of inventory management, allowing businesses to hold the necessary amount of stock to satisfy demand without excess stock or out-of-stock situations for critical items. Stock control card is one of the essential instruments utilized for effective inventory tracking. Stock control cards contains a complete record of the movement of […]
What is Economic Batch Quantity? With Example
Economic batch quantity (EBQ) is a crucial concept that determines the most cost-effective quantity of units to produce in a single batch or production run. By optimizing the batch size, businesses can minimize their overall production costs, considering factors such as ordering, setup, carrying, and unit costs. Understanding EBQ and Its Significance Economic Batch Quantity […]
What is Production Volume Variance?
Production volume variance is a measure of the difference between the actual cost of producing a certain number of units of output and the budgeted cost of producing that output. It is a type of overhead variance, which is a variance that arises from the difference between the actual cost of overhead and the budgeted […]
How to Calculate Profit or Loss on Incomplete Contracts?
The profit or loss on incomplete contracts in cost accounting can be calculated using the percentage of completion method. This method recognizes profit or loss on a contract in proportion to the percentage of work completed. Profit of Loss on Incomplete Contract – Calculation To calculate the profit or loss on an incomplete contract using […]
What is a Cost Plus Contract?
Cost plus contract, which is also known as a cost-reimbursement contract, pays a contractor for all permitted expenses up to a predetermined limit plus an additional sum to cover profit on top of that. Contracts with a fixed price that pay the contractor the agreed-upon sum regardless of costs incurred are also known as cost-reimbursement […]
What is a Production Budget and Its Components?
A production budget is a financial plan that outlines the estimated costs associated with creating and delivering a product or service. The production budget serves as a guide for businesses to allocate resources effectively, plan their expenses, and manage costs throughout the production cycle. It provides insight into the financial requirements of producing and delivering […]
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 […]