Target/backward costing
Target/backward costing
 
Direct/marginal costing <ul><ul><li>direct or variable costing is an inventory valuation method where only the variable ma...
Direct/marginal costing <ul><ul><li>Contribution=Sales – marginal costs </li></ul></ul><ul><ul><li>Refer the basic cost sh...
Absorption costing <ul><ul><li>Variable and non variable costs </li></ul></ul><ul><ul><li>Recovers overheads by assigning ...
Under-absorption and over-absorption of overheads <ul><ul><li>Under-absorption of overheads </li></ul></ul><ul><li>costs a...
Direct costing vs. absorption costing
 
ABC costing
<ul><ul><li>Prepare a cost sheet from the following data to find out </li></ul></ul><ul><li>1. Profit and 2.Cost per unit....
<ul><ul><li>ABC Fashions is a small scale exporter of garments. Despite intense competition, it has managed to win several...
<ul><ul><li>A company makes three products A, B,C and their cost of manufacture is as follows. </li></ul></ul><ul><li>A B ...
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costing process

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costing process

  1. 2. Target/backward costing
  2. 3. Target/backward costing
  3. 5. Direct/marginal costing <ul><ul><li>direct or variable costing is an inventory valuation method where only the variable manufacturing costs are charged to the inventory </li></ul></ul><ul><ul><li>fixed overhead costs,ie rent,property taxes,insurance,depreciation etc are charged to expense in the current period as period costs </li></ul></ul><ul><ul><li>it tends to be easier to calculate than full absorption costing </li></ul></ul>
  4. 6. Direct/marginal costing <ul><ul><li>Contribution=Sales – marginal costs </li></ul></ul><ul><ul><li>Refer the basic cost sheet excel sheet </li></ul></ul>
  5. 7. Absorption costing <ul><ul><li>Variable and non variable costs </li></ul></ul><ul><ul><li>Recovers overheads by assigning a percentage to some elements of direct labour </li></ul></ul><ul><ul><li>Refer the excel sheet-basic cost sheet </li></ul></ul>
  6. 8. Under-absorption and over-absorption of overheads <ul><ul><li>Under-absorption of overheads </li></ul></ul><ul><li>costs allocated is less than actual </li></ul><ul><ul><li>Over-absorption of overheads </li></ul></ul><ul><li>costs allocated is more than actual </li></ul>
  7. 9. Direct costing vs. absorption costing
  8. 11. ABC costing
  9. 12. <ul><ul><li>Prepare a cost sheet from the following data to find out </li></ul></ul><ul><li>1. Profit and 2.Cost per unit. </li></ul><ul><ul><li>a.Raw Materials consumed Rs.1, 60,000 </li></ul></ul><ul><ul><li>b. Direct wages Rs.80, 000 </li></ul></ul><ul><ul><li>c. Factory overheads Rs.16, 000 </li></ul></ul><ul><ul><li>d. Selling overheads Rs.1, 20,000 </li></ul></ul><ul><ul><li>e. Units produced 4000 </li></ul></ul><ul><ul><li>f. Units sold 3,600 </li></ul></ul><ul><ul><li>g. Office overheads- 10% of factory cost </li></ul></ul><ul><ul><li>h. Selling price – Rs.100 per unit. </li></ul></ul>
  10. 13. <ul><ul><li>ABC Fashions is a small scale exporter of garments. Despite intense competition, it has managed to win several orders from Germany and Middle East. It has established a reputation for quality and feels that it can gain a foothold elsewhere in Europe if it can lower its costs. Shirts are its specialty and currently the figures given below explain the cost structure. It feels that a bigger market share can be gained if its shirts could be sold for 9.50USD FOB. (Given the conversion rate 1USD=INR 50). </li></ul></ul><ul><ul><li>Suggest to Fast Fashion. Where and by how much can cost control be exercised to sell at the </li></ul></ul><ul><li>desired price? </li></ul><ul><li>What innovative measures can it take to be more competitive? </li></ul><ul><li>Cost structure of the shirt: </li></ul><ul><ul><li>Materials cost- </li></ul></ul><ul><ul><li>Fabric-2 m. @ 75/m </li></ul></ul><ul><ul><li>Trims- Rs.5 </li></ul></ul><ul><ul><li>Labor Cost- </li></ul></ul><ul><ul><li>Cutting- 2 hrs.@Rs.20 per hour </li></ul></ul><ul><ul><li>Sewing- 1 hr. @Rs.30 per hour </li></ul></ul><ul><ul><li>Finishing -2 hrs. @ Rs.20 per hour </li></ul></ul><ul><ul><li>Factory Overheads </li></ul></ul><ul><ul><li>30% of Labor cost </li></ul></ul><ul><ul><li>Transport and communication- 5% of direct costs </li></ul></ul><ul><ul><li>Profit = 20% of total cost </li></ul></ul>
  11. 14. <ul><ul><li>A company makes three products A, B,C and their cost of manufacture is as follows. </li></ul></ul><ul><li>A B C </li></ul><ul><ul><li>Direct material per unit Rs 3 Rs 4 Rs5 </li></ul></ul><ul><ul><li>Labour Rs 2 Rs 3 Rs 4 </li></ul></ul><ul><ul><li>Selling price Rs 10 Rs15 Rs20 </li></ul></ul><ul><ul><li>Output 1000 units 1000 1000 </li></ul></ul><ul><ul><li>Total overheads are Rs 6000 out of Rs 3000 are fixed and rest are </li></ul></ul><ul><li>variable . </li></ul><ul><ul><li>You are required to show the statement showing cost of each product and Profit according to absorption costing and marginal costing. </li></ul></ul>

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