Category: Cost Accounting

Direct and Indirect Costs

Costs that are assigned to cost objects can be divided into two broad categories Direct and Indirect costs. Both categories can be further divided into direct and indirect material costs, and direct and indirect labour costs Each of these categories is discussed in the following sections. Direct Materials Direct materials represent those material costs that can be specifically and […]

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Cost Terms and Concepts

Accounting information systems measure costs that are used for different purposes i.e profit measurement and inventory valuation, decision-making, performance measurement and control. Therefore different types of costs are used in different situations. Because the term ‘cost’ has multiple meanings, a preceding term must be added to clarify the assumptions that underlie a cost measurement. A large terminology has emerged […]

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Absorption costing system

Below image provides an overview of the cost assignment process for an absorption costing system, The term cost tracing is used in this photo to denote the fact that direct costs can be specifically and exclusively identified with a particular cost object. Cost assignment merely involves the implementation of suitable data processing procedures that identify and […]

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Short-Run Price Decision of Price Setting Firm

Companies can encounter situations where they have temporary un-utilized capacity and are faced with the opportunity of bidding for a one-time special order in competition with other suppliers. In this situation only the incremental costs of undertaking the order should be taken into account. It is likely that most of the resources required to fill the order will have […]

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Pricing non-customized products andservices using target costing

Instead of using the cost-plus pricing approach described in above example (Case A) whereby cost is used as the starting point to determine the selling price, target costing is the reverse of this process. With target costing the starting point is the determination of the target selling price. Next a standard or desired profit margin is deducted to […]

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Pricing Customized Products and Services

Customized products or services relate to situations where products or services tend to be unique so that no comparable market prices exist for them. Since sales revenues must cover costs for a firm to make a profit, many companies use product costs as an input to establish selling prices. Product costs are calculated and a desired prof it […]

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Pricing Strategies on Non-Customized Products

Pricing decision for customized products or services is easy, it is a single customer with the pricing decision being based on direct negotiations with the customer for a known quantity, But for non-customized products, it needs full detailed plan of pricing decision, for example pricing of a shoe in show factory, is a non-customized product. Customized Products: […]

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Inventory System

The two principal systems for determining the inventory quantities on hand are the periodic system and the perpetual system. Both systems may be used simultaneously by companies with different classes of inventory. The Periodic System This system requires a physical count of goods on hand at the end of the period. A cost basis (i.e., FIFO, LIFO, etc.) […]

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Fixed and Variable Costs

For proper budgeting and cost control it is necessary to make a distinction between fixed and variable total costs. Most costs fit easily into one category or the other; however, various items of factory overhead can be classified as semi variable costs and must be carefully examined to determine their relationship to changes in the volume of production. Fixed […]

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Nature of Cost Accounting

The broad definition of cost accounting and nature of cost is the process of identifying, summarizing, and interpreting information needed for: Planning and Control Management Decisions Product Costing Note that product costing is number 3, since in most companies, the more important activities relate to planning and control and special decisions rather than to the more mechanical aspects […]

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Cost Systems

  Cost Systems The cost classifications do not provide all required cost data. Most cost planning and control data can only be provided by an adequate cost system, designed so that individual supervisors, department heads, and executives can be held accountable for all costs which are their responsibility. The concepts of authority and responsibility are closely related to accountability […]

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Cost Accounting Concepts

Cost Accounting Concepts A concept is a basic principle or assumption, as opposed to a procedure, for carrying out the concept. Cost accounting concepts may be separated into two groups: Planning Controlling 1. Planning: There are two key types of planning, as described below. Project Planning. The process whereby management, confronted by a specific problem, evaluates each alternative in order to […]

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