Cost Accounting and Cost Management

Cost accounting is a system of collecting, recording, and analyzing financial data to help managers make a decision about where and how to allocate resources

  • fixed overhead volume variance

    What is Fixed Overhead Volume Variance?

    The fixed overhead volume variance is also referred to as the production volume variation because this variance is dependent on production volume. The volume variance quantifies the difference between two output levels in monetary terms. The first production level represents the period’s actual output. The second production level serves as the denominator in the budgeted fixed overhead rate, which is stated in units.

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  • throughput costing

    What is Throughput Costing?

    Throughput costing, also known as super-variable costing, is a relatively recent concept. Except for direct materials, all expenditures are treated as period expenses under throughput pricing. Therefore, the matching concept only applies to direct materials. Before selecting throughput costing, a corporation should likely satisfy two conditions. The first criterion refers to the manufacturing process itself. Throughput costing only makes sense for manufacturing organisations when the majority of labour and administrative expenses are fixed. Highly automated assembly-line and continuous operations are more likely to fit this requirement. For instance, thirty manufacturing employees may be obliged to complete a shift regardless of whether or not the machinery is operating at maximum capacity. The second requirement is that management likes cost accounting information that is useful for short-term, incremental analysis, such as determining if the firm should accept a one-time special sales order at a discounted price. In this regard, a company’s selection of throughput costing follows logically…

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  • idle time

    What is Idle Time in Cost Accounting

    In cost accounting, idle time is when a production resource is available but not used. Idle time can occur for several reasons, such as when a production line is shut down for maintenance or when there is a shortage of raw materials. In many factories, idle time is a major source of inefficiency and wasted resources. When idle time is not properly managed, it can lead to significant increases in the cost of production. How to Minimise Idle Time? There are some ways to manage and reduce idle time. One common approach is to use work order sequencing to ensure that production resources are used as efficiently as possible. Work order sequencing is a process of organising and scheduling work orders to minimise the amount of time that production resources are idle. Another approach to reducing idle time is to implement just-in-time production. In just-in-time production, raw materials and components are only delivered to the…

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  • labour turnover

    What is Labour Turnover in Cost Accounting?

    Labour turnover is the number of employees who leave a company over a period of time, divided by the average number of employees during that period. The turnover rate is usually expressed as a percentage. For example, if a company has 100 employees and 10 leave in a year, its labour turnover rate would be 10%. Causes of Labour Turnover Labour turnover can be caused by a variety of factors, including voluntary resignations, retirements, and terminations. It can also be affected by the business cycle. For example, turnover tends to increase during periods of economic growth as more people are hired than usual and more people leave to take advantage of better job opportunities. There are a number of costs associated with labour turnover, including the cost of recruiting and training new employees. These costs can be high, so it’s important to try to minimise turnover. There are several ways to do this, including offering…

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  • costing on calculator

    What is a Cost Centre in Costing?

    A cost centre is a department or function within an organisation for which costs are incurred. Cost centres are typically grouped together by function, such as production, marketing or administration. In cost accounting, a cost centre is any department or function within an organisation for which costs are incurred. These centres are typically grouped by function, such as production, marketing or administration. Purpose of a Cost Centre A cost centre can also be responsible for revenue generation, but this is not its primary purpose. The main purpose of cost centres is to provide information that can be used for decision-making and cost control. A cost centre is often used with profit and investment centres. Profit centres are responsible for generating revenue, while investment centres are responsible for incurring costs. Cost centres can be either fixed or variable. Fixed cost centres have costs that do not change with changes in activity levels. For example, the rent…

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  • budget

    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. Causes of Abnormal Losses Abnormal losses can occur for a variety of reasons, but the most common is when there is a break in the production process. This can be caused by a machine malfunction, power outage, or even human error. When this happens, fixing the problem and getting the production process back up and running can often take time. This can lead to a loss of output and as a result, an increase in costs. Another common cause of abnormal loss is when raw materials are of poor quality. This can also lead to higher costs as it can take longer to produce the…

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