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Cost concepts

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Cost concepts Cost concepts Presentation Transcript

  • COST CONCEPTS
    BY
    EP JOHN
    11397044
  • COST CONCEPTS
    SELECTION BETWEEN ALTERNATIVES
    DEPENDS ON BUSINESS DECISIONS
    IMPORTANAT TO USE RIGHT ANALYSIS OF COST
    THE COST ESTIMATES BY CONVENTIONAL FINANCIAL ACCOUNTING ARE NOT APPROPRITE FOR ALL MANAGERIAL USES.
    DIFFERENT BUSINESS PROBLEMS CALL FOR DIFFERENT KINDS OF COSTS.
  • TYPES OF COSTS
    FUTURE AND PAST COSTS
    INCREMENTAL AND SUNK COSTS
    OUT-OF-POCKET AND BOOK COSTS (ac)
    HISTORICAL AND REPLACEMENT COSTS
    EXPLICIT AND IMPLICIT COSTS(ac)
    ACTUAL AND OPPURTUNITY COSTS (ac)
    DIRECT AND INDIRECT COSTS
    SHUT DOWN AND ABANDONMENT COSTS
    PRIVATE AND SOCIAL COSTS
  • FUTURE AND PAST COSTS
    FUTURE COSTS ARE THE ESTIMATES OF TIME ADJUSTED PAST OR PRESENT COSTS AND ARE REASONABLY EXPEECTED TO BE INCURRED IN SOME FURTURE PERIOD OR PERIODS.
  • FUTURE AND PAST COSTS
    PAST COSTS ARE ACTUAL COSTS INCURRED IN THE PAST AND THEY ARE ALWAYS CONTAINED IN THE INCOME STATEMENTS.
    RECORD KEEPING ACTIVITY.
  • INCREMENTAL AND SUNK COSTS
    INCREMENTAL COSTS ARE DEFINED AS THE CHANGE IN OVERALL COSTS THAT RESULT FROM PARTICULAR DECISIONS BEING MADE
  • INCREMENTAL AND SUNK COSTS
    SUNK COST IS THE ONE NOT AFFECTED OR ALTERED BY A CHANGE IN THE LEVEL OR NATURE OF BUSINESS ACTIVITY.
  • OUT-OF-POCKET AND BOOK COSTS
    OUT-OF-POCKET COSTS INVOLVE IMMEDIATE PAYMENTS TO OUTSIDERS.
    WAGES AND SALARIES
  • OUT-OF-POCKET AND BOOK COSTS
    IF OUT-OF-POCKET COSTS NOT PAID IT BECOMES BOOK COST. THIS CAN BE CONVERTED INTO OUT-OF-POCKET COST BY SELLING ASSETS AND LEASING THEM BACK FROM THE BUYER.
  • HISTORICAL AND REPLACEMENT COSTS
    HISTORICAL COST STATES THE COST OF PLANT, EQUIPMENT AND MATERIALS AT THE PRICE ORIGINALLY PAID FOR THEM.
  • HISTORICAL AND REPLACEMENT COSTS
    REPLACEMENT COST MEANS THE PRICE THAT WOULD HAVE TO BE PAID CURRENTLY FOR ACQUIRING THE SAME PLANT.
  • EXPLICIT AND IMPLICIT COSTS
    EXPLICIT COSTS ARE THOSE EXPENSES THAT ARE ACTUALLY PAID BY THE FIRM (PAID-OUT-COSTS). THEY ARE GENERALLY RECORDED IN BOOKS OF ACCOUNT.
  • EXPLICIT AND IMPLICIT COSTS
    IMPLICIT COSTS ARE THEOROTICAL EXPENSES IN THE SENSE THAT THEY GO UNRECOGNISED BY THE ACCOUNTING SYSTEM. MAY BE DEFINED AS THE EARNINGS OF THOSE EMPLOYED RESOURCES THAT BELONG TO THE OWNER HIMSELF
  • ACTUAL AND OPPURTUNITY COSTS
    THE ACTUAL EXPENDITURE INCURRED FOR
    ACQUIRING OR PRODUCING A GOOD
    OR SERVICE. THESE COSTS ARE GENERALLY RECORED IN THE BOOK OF ACCOUNTS.
  • ACTUAL AND OPPURTUNITY COSTS
    THE OPPURTUNITY OR ALTERNATIVE COST
    ARE THE RETURNS FROM SECOND BEST
    USE OF THE FIRM’S RESOURCES WHICH THE FRIM FORGOES IN ORDER TO AVAIL ITSELFOF THE RETURNS FROM THE BEST USE OF THE RESOURCES.
  • DIRECT AND INDIRECT COSTS
    COST THAT CAN BE DIRECTLY ATTRIBUTED
    TO THE PRODUCTION OF A UNIT
    OF A GIVEN PRODUCT.
    THIS CAN BE EASILY
    SEPARATED, ASCERTAINED AND
    IMPUTED TO A UNIT OF OUTPUT.
  • DIRECT AND INDIRECT COSTS
    COSTS THAT CANNOT BE SEPARATED
    AND CLEARLY ATTRIBUTED TO INDIVIDUAL
    UNITS OF PRODUCTION
    LIKE ELECTRICITY CHARGES
  • SHUT DOWN AND ABANDONMENT COSTS
    SHUT-DOWN COSTS ARE REQUIRED TO
    BE INCURRED WHEN THE PRODUCTION
    OPERATIONS ARE SUSPENDED AND WILL NOT
    BE NECESSARY, IF THE PRODUCTION
    OPERATIONS CONTINUE.
    IF THE PRODUCTION IS SUSPENEDED,
    THE PLANT, MACHINERY OR EQUIPMENT
    WILL HAVE TO BE PROTECTED BY PUTTING UP
    SHEDS, USING TARPAULIN, PLASTIC SHEETS ETC.
  • SHUT DOWN AND ABANDONMENT COSTS
    WHEN ANY PLANT IS TO BE
    PERMANENTLY CLOSED DOWN,
    SOME COSTS ARE TO BE INCURRED
    FOR DISPOSING OFF THE FIXED ASSETS
  • PRIVATE AND SOCIAL COSTS
    THE MICRO LEVEL ECONOMIC COSTS.
    IF THE DECISION OF A FIRM TO EXPAND
    ITS OUTPUT LEADS TO INCREASE IN ITS COST,
    IT IS PRIVATE COST
    ARE THOSE WHICH ARE ACTUALLY INCURRED
    OR PROVIDED FOR
    BY AN INDIVIDUAL OR FIRM
    FOR ITS BUSINESS ACTIVITY.
  • PRIVATE AND SOCIAL COSTS
    THE MACRO LEVEL ECONOMIC COSTS.
    IF IT LEADS TO CERTAIN COSTS TO THE SOCIETY,
    MAY BE IN THE NATURE OF
    GREATER POLLUTION, CONGESTION ETC
    SOCIAL COST IS THE TOTAL COST TO THE SOCIETY ON
    ACCOUNT OF PRODUCTION OF A GOOD.
  • THANK- U