What is Labour Turnover in Cost Accounting?
Labour turnover is a crucial metric in cost accounting that measures the rate at which employees leave a company and are replaced by new employees. A high rate of labour turnover can have significant financial implications for a company, including increased costs related to recruitment, training, and lost productivity. In this article, we will explore […]
What is a Cost Centre in Costing? Purpose and Benefits
Cost centres refer to specific divisions and departments, that are responsible for managing their own expenses and can have costs assigned to them. In cost accounting, a cost centre is any department or function within an organisation for which costs are incurred. Cost centres are utilised to separate financial activity according to the nature of […]
What is Abnormal Loss in Cost Accounting?
An abnormal loss is a cost accounting term that refers to a situation where the expected output of a production process is not achieved due to factors beyond the control of management. This can lead to an increase in the cost of goods sold and, ultimately, a decrease in profits. Let’s try to understand in […]
What is Cost Accounting? Definition and Objectives
Cost Accounting is a term used in management accounting to track and analyze the costs incurred in the production process of goods or services. It involves collecting, recording, and analyzing various types of costs to provide valuable information for decision-making purposes. The main goal of Cost Accounting is to determine the true cost of producing […]
Pros and Cons of the Traditional Method of Calculating Overhead
Calculating overhead is an essential part of determining the true cost of goods and services in a business. Overhead costs are indirect costs, such as rent, utilities, and insurance, necessary to keep a business running. The traditional method of calculating overhead allocates these costs to products or services based on a predetermined rate, such as […]
What is the Margin of Safety? Margin of Safety Formula
The Margin of Safety (MoS) refers to the difference between the actual/target output and the break-even level of output/quantity. The margin of safety (MOS) ratio equals the difference between budgeted sales and break-even sales divided by budget sales. The margin of safety indicates how much a company may lose in sales before it starts losing […]
Job Order Costing versus Process Costing
Job order costing is a form of accounting that attributes individual costs directly to a completed job or service rather than to the manufacturing department. It is utilised when things are created to order or when it is simple to trace individual expenses to specific activities, presuming that the additional information adds value. Under these […]
What is Labour Efficiency Variance? Meaning and Example
Labour Efficiency Variance is also known as Labour Time Variance. It is that portion of the Labour Cost Variance which arises due to the difference between the standard labour hours specified and the actual labour hours spent. It quantifies the difference between these two measures and highlights whether a business is utilising its labour force […]
Meaning, Pros and Cons of Process Costing
The process is a series of stages that must be followed in order to finish a given task. The method of preserving cost records for each procedure is referred to as costing. It refers to the cost accounting approach in which expenses are accrued for all interdependent processes. After going through a series of processes, […]
Meaning, Benefits and Drawbacks of ABC Analysis
ABC analysis is a widely used inventory management technique that categorizes inventory into three groups: A, B, and C, based on relative importance. This method helps businesses prioritize their inventory based on its importance and significance, leading to several benefits. Also referred to as “Selective Inventory Control.” Strategies based on an ABC analysis: The ABC […]