Accounting for the non accountant - unit 3
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This document discusses different costing methods that can help management make better decisions. It explains that a costing system establishes the costs of activities and products based on past and estimated future costs. This allows a firm to understand profitability, compare actual vs estimated costs, and set appropriate prices. The document outlines different types of costs like direct, indirect, fixed and variable costs. It also explains methods for allocating indirect costs through apportionment and absorption costing using predetermined overhead rates. Marginal costing is also discussed as providing better information for planning by treating fixed costs as period costs.
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Hello Friends!
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Cost accounting.pptx BY CAMI CATHERINE
COST ACCOUNTING Cost accounting is a process of collecting, recording, classifying, analyzing, summarizing, allocating and evaluating various alternative courses of action & control of costs.
Its goal is to advise the management on the most appropriate course of action based on the cost efficiency and capability.
Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future.
Definitions Cost accounting is the process of determining and accumulating the cost of product or activity.
It is defined as, 'the establishment of budgets, standard costs and actual costs of operations, processes, activities or products and the analysis of variances, profitability or the social use of funds.
Objectives of Cost AccountingTo control cost by using various techniques such as budgetary control, standard costing, and inventory control
To provide information for decision making and planning to formulate operative procedures
To help in directing and controlling operations
To ascertain costing profit
motivate to achieve the organization's goals
Scope of Cost Accounting Cost book-keeping
It involves maintaining complete record of all costs incurred from their incurrence to their charge to departments, products and services. Such recording is preferably done on the basis of double entry system.
Cost System
Proper accounting for costs requires systems and procedures.
Cost Ascertainment
Cost ascertainment forms the basis of managerial decision making for planning and control.
Cost Analysis
It involves the process of finding out the causal factors of actual costs varying from the budgeted costs and fixation of responsibility for cost increases.
Cost Comparisons
Cost accounting also includes comparisons between cost from alternative courses of action over a period of time.
Cost Control
Cost accounting is the utilization of cost information for exercising control. It involves a detailed examination of each cost in the light of benefit derived from the incurrence of the cost.
Cost Reports
The ultimate function of cost accounting is the presentation of reports. These reports are primarily for use by the management at different levels. Cost reports form the basis for planning and control, performance appraisal and managerial decision making.
Importance of Cost Accounting1. To Management
• Helps in ascertainment of cost of process, product, activity, by using different techniques such as job costing and process costing..
• Aids in price fixation by using demand and supply, activities of competitors, market condition to a great extent, also determine the price of product and cost to the producer does play an important role. The producer can take necessary help from costing records.
Helps in cost reduction by applying cost reduction pro gramme and improved methods are tried to reduce costs.
Elimination of wastage by checking the forms of waste, such as time and expenses et
ma_ch03_slides.ppt
Overhead costs are indirect costs that cannot be directly traced to specific products or services. Absorption costing and activity-based costing (ABC) are two approaches to allocating overhead costs. Absorption costing uses cost centers and predetermined overhead rates to allocate overhead, while ABC identifies activities causing overhead and assigns costs based on cost drivers. ABC aims to improve cost accuracy but requires more resources and its outputs still involve subjective allocations. Both methods allocate fixed overhead costs that may remain even if a product is discontinued.
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Cost management is the process of planning and controlling costs associated with running a business. Strategic cost management aims to strengthen a company's strategic position by carefully controlling costs according to broader objectives. It combines cost information with decision-making to reinforce business strategy by measuring and managing costs in alignment with strategies. Strategic cost management offers a better understanding of an organization's cost structure to gain competitive advantage.
Cost accounting
Group 11 presented information on cost accounting. The objectives of cost accounting are to advise management on cost-efficient actions, help with operations direction and control, and provide immediate information on inventory. Costs are classified as direct, indirect, variable, fixed, semi-variable, or chunky based on their behavior when activity changes. Direct costs are specifically related to a product while indirect costs are not directly tied to a product. Cost centers and cost drivers are used to assign indirect costs in a two-stage process. Designing an effective cost accounting system requires determining the appropriate number of cost centers and how to assign costs to products.
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Marginal costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution.
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This document provides an overview of cost and management accounting. It defines cost accounting as a system for recording costs and producing cost information for products. It also discusses why organizations need costing systems to provide actual unit costs, actual department costs, and forecast costs for planning, decision making, and cost control. The document then covers key terms in cost accounting such as cost, cost units, cost centers, cost objects, and classifications of costs by nature, function, behavior, and changes in activity or volume.
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Pricing is an important factor in a product's success and a company's survival. While price was traditionally seen as the most important factor, new startups need to consider that customers may not pay high prices for unknown brands. There are various pricing strategies companies can use, such as penetrating the market with low prices before raising them, skimming by starting high and lowering over time, or matching competitors' prices. Internal transfer pricing between company divisions also impacts costs and profits.
Accounting for the non accountant - unit 7
This document discusses different methods for calculating the cost of goods issued to production from inventory, including FIFO and average costing. It focuses on explaining the continuous weighted average (CWA) method. CWA calculates the cost of goods issued based on the weighted average cost of all inventory at the time of issue. The document provides an example of the calculations for a company that received and issued inventory during January 2015 and ensures the issue prices were calculated correctly using CWA.
Accounting for the non accountant - unit 6
CVP analysis serves several purposes:
1) To provide management information about cost behavior for routine planning and one-off decision making, such as determining the volume required at a given sales price to break even.
2) To identify potential risks in the budget by measuring the margin of safety and calculating the effect of changes in variable costs, prices, and fixed costs on profit.
3) Marginal cost is the change in total cost from producing one additional unit of a good or service. It includes any additional costs required to produce the next unit.
Accounting for the non accountant - unit 6
CVP (Cost Volume Profit) analysis serves several purposes for management: to provide information for routine planning and one-off decision making, such as determining the volume needed to break even at a given sales price. CVP also identifies potential risks in the budget by measuring the margin of safety and calculating the effect of changes in variable costs, prices, and fixed costs on profit. Marginal cost is the cost of producing one additional unit and is included in total cost at each production level. For example, if a car has a marginal cost of £1000 and sells for £8000, the contribution per unit is £7000. Break-even point is calculated as total fixed costs divided by the contribution per unit and indicates the volume needed
Accounting for the non accountant - unit 5
Management accounting collects data to aid in planning, control, and decision making. It has six main functions: planning, control, cost accounting, decision making, financial management, and auditing. A negative approach can result in poor information and wrong decisions, so management accountants should be cooperative, non-autocratic, and informative.
Accounting for the non accountant - unit 4
Operations management involves managing the key functions needed to produce and deliver a company's products and services. These functions include procurement, production, logistics, and quality management. The goal is to achieve high performance standards that allow the company to succeed in competitive global markets. Some common operational structures used in manufacturing include jobbing processes for low-volume custom work, batch processes for producing multiple items at once, project processes for construction work, mass processes for large quantities, and continuous processes for extreme volumes.
Accounting for the non accountant - unit 2
A mission statement declares an organization's core purpose and focus, which generally remains constant over time. It states the sole reason the entity exists. Mission statements can play an important role in planning by outlining how the organization will fulfill its mission and act as a yardstick to evaluate plans. However, there are also limitations to mission statements, as they are sometimes ignored in practice, used merely for public relations, or contain vague generalizations instead of clear objectives.
Accounting for the non accountant - unit 1
This document defines key terms in accounting:
- Management accounting applies accounting principles to create value for stakeholders.
- Bookkeeping involves recording monetary transactions in accounts and extracting a trial balance.
- An audit is a systematic examination of an entity's activities, systems, and records to determine if accounts are credible. There are external auditors appointed by owners and internal auditors appointed by managers.
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Accounting for the non accountant - unit 3
- 1. Measuring Cost • The aim of a costing system is to provide information about the operating costs of activities within a firm. This will help management in the following ways: • Establishing the cost of a product for the future, based on costs incurred in the past, or forecast what costs are likely to be in the future • Outlines the profitability of the service or product that the company is selling. • Compare actual costs with estimated costs. By doing this a firm can see if it’s costs are under control. • Make better informed decisions in regards to setting prices for the products or service it provides. 3. Costing
- 2. • Direct costs and Indirect costs (Overheads) • Costs can be summarised as the sum of direct costs and indirect costs. Firms use costing systems to establish their profitability. • Cost = Variable costs + Fixed costs • Costs which are partly-fixed and partly- variable can be segregated into their fixed cost and variable cost elements using the high-low method. 3.1 Types of Cost
- 4. Apportionment • This is where indirect costs are spread (apportioned) fairly between different areas of the organization • Overhead absorption is the process where costs of organizations are added to the unit, process or job costs. This is sometimes known as overheard recovery. Absorption • Absorption of overheads occurs because the predetermined overheard absorption rates are based on forecasts. • Absorption costing is most often used for routine profit reporting and must be used for financial accounting purposes. • Predetermined overheard absorption rates are normally used based on budgeted figures. Marginal costing • Marginal costing provides better management information for planning and decision making. • Marginal cost is the cost of producing one more unit of a product or service. • Contribution, is the difference between Sales revenue (Price x Quantity) and the marginal or variable cost of sales. • In marginal costing, fixed production costs are treated as period costs and are written off when incurred. 3.3 Apportionment , Absorption & Marginal costing