Cost Accounting
Cost accounting is defined as the process of accounting for cost which begins with the recording of income and expenditure and ends up with the preparation of periodical report for ascertaining and controlling cost.
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What is Marginal Cost and Marginal Cost Equation
What is Marginal Cost The marginal cost of an additional unit of output is often referred to as the “prime cost plus variable overhead.” It encompasses all costs that vary according to the amount of output. To determine the marginal cost, a comparison between the cost of manufacturing one unit and the cost of creating the next one must be made. Significance of Marginal Costing Marginal costing has been a critical component of traditional management accounting since its inception. However, as management accounting evolved over the last decade, the form and breadth of marginal costing shifted dramatically. Its ideas have been updated to reflect modern management accounting concepts. Due to their limited application and rising complexity, experts now challenge conventional cost accounting techniques. Cost management techniques such as investment assessments and value-based tools are required in addition to the traditional function of cost accounting in monitoring the economic production process…
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Non Integrated Accounting System
In cost accounting the cost books are basically maintained under the following two systems: I. Non-integral or non-integrated cost accounting. 2. Integral or integrated cost accounting. When cost and financial transactions are maintained apart, the system is said to be non-integral. On the other hand, an accounting system is referred to as integrated or integral when cost and financial transactions are merged. Non-integral accounting systems retain distinct ledgers for cost and financial transactions. Financial accountants are responsible for modifying financial transactions, whereas cost accountants are in charge of cost accounting transactions. Financial accounting maintains the following ledgers: General ledger: It contains all real. nominal and personal accounts except trade debtors and creditors account. Debtors ledger: It has personal accounts of trade debtors. Creditors ledger: It has personal accounts of trade creditors. The cost accounting department maintains the following cost ledgers: 1. Stores ledger: This ledger contains all stores accounts. 2.…
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Introduction to Job Costing and Its Benefits
Job Costing Job costing is a cost accounting system that allocates the costs of producing a good or service to the particular products and services of the company that created them. This gives management a clear picture of where money is being wasted and helps them make more informed decisions about which products and services to produce in the future. The primary characteristic of the work order costing method is that no two orders are identical and that no two orders undergo the same production process. Commonly, the job order system is used by manufacturing businesses that make items to a customer’s requirements, such as construction, contracting, machine tool manufacturing, furniture manufacturing, foundries, job printing, and general engineering. A job might be a product, unit, batch, sales order, project, contract, service, or special programme, or it can be any other cost target that is clearly recognisable and unique in terms…
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Introduction to Operating Costing
Cost accounting has always been associated with industrial firms. However, in today’s competitive market, cost accounting is increasingly being used in service industries such as banks, insurance companies, transportation organisations, power generation companies, hospitals, passenger transport and railways, hotels, road maintenance, educational institutions, road lighting, canteens, and port trusts, among others. Operating Costing The costing method utilised in these businesses is known as ‘Operating Costing’. According to the Institute of Cost and Management Accountants [UK] operating costing is, ‘that form of operating costing which applies where standardised services are supplied either by an undertaking or by a service cost centre within an undertaking’. Nature of Operating Costing The fundamental purpose of operating costing is to quantify the cost of the services delivered by the firm. For achieving this, it is required to decide the unit of cost in such circumstances. The cost units differ from industry to industry. For example,…
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Cost classification according to the accounting treatment
Cost classification refers to how costs are treated in cost accounting. There are two types of costs as per treatment. Product Costs Product costs comprise all expenses associated with purchasing or manufacturing a product. These costs include direct materials, direct labour, and manufacturing overhead in the case of manufactured goods. Product expenses are considered as being linked to units of product during the purchasing or manufacturing process and remaining attached while the goods are placed in inventory awaiting sale. Thus, product expenses are originally attributed to a balance sheet inventory account. When goods are sold, the associated costs are deducted from inventory as expenses (referred to as Cost of Goods Sold) and offset against income. The term “product cost” is frequently used to refer to the cost of inventory. Costs associated with products are not expensed in the period in which they are incurred. They are expensed during the time…
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Budgeting and Appraisal Techniques [Quiz]
Q1. Choose the best statement regarding non-financial performance indication: a. it is short-sighted to consider that human resources might factor in as an indicator of performance b. absenteeism in the workplace probably indicates the work systems and the environment is stimulating c. being an employer of choice is an excellent example of a non-financial performance indicator d. non-financial performance indicators are ethereal and fluffy, not worth much thought Q2. Which of the following represent investments?a. building a factory to make tennis racquetsb. constructing a toll road as principal contractor and lesseec. supplying capital for a new ventured. all of the above Q3. Which of the following is incorrect regarding budgeting stylesa. In an authoritarian style of budgeting, unit managers have little say in the targets that are set.b. A more participative-style budget process will produce a number of advantages including managers’ having more ownership in targetsc. In an authoritarian style…
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