THE FUNDAMENTAL OF COSTING and CALCULATION OF UNIT COSTS
Cost analysis & management rev
1.
2. Cost management generally
describes the approaches and
activities of managers in short run
and long run planning and control
decisions that increase value for
customers and lower costs of
products and services.
3. It focuses on cost reduction and
continuous improvement and change
rather than cost containment
The planning and control of costs is
usually inextricably linked with revenue
and profit planning
Cost management is not practiced in
isolation
4. Material: physical or tangible inputs which go
into manufacture of any product or rendering of
services
Labor: human effort that goes into the
production of goods
Overheads: all other items other than material
and labor come under this class
7. Financial Management
Investors Internal
Creditors managers of the
Government business
authorities
(IRS, SEC, etc.)
8. Financial
Management
Help
Help managers
investors, credi
plan and control
tors, and
business
others make
operations
investment, cre
dit, and other
decisions
9. Financial
Management
Reliability, obje
Relevance
ctivity, and
focus on the
past
10. Financial
Management
Financial
Internal reports
statements
not restricted
restricted by
by GAAP;
GAAP
determined by
FASS
cost-benefit
analysis
11. Financial
Management
Annual
No independent
independent
audit
audit by CPAs
12. Financial
Management
Summary
Detailed reports
reports
on parts of the
primarily on
company
the company
as a whole
13. Financial
Management
Concern about
Concern about
adequacy of
how reports will
disclosure
affect
employees
behavior
15. Cost drivers are any factors that affect cost.
16. What are direct costs?
Direct costs are those costs that
can be specifically traced to the
cost object.
What are indirect costs?
Indirect costs are costs that
cannot be specifically traced to
the cost object.
17. Direct Direct Indirect Indirect
Other
Materials Labor Labor Materials
Overhead Costs
18. Direct Direct
Materials Labor
Prime Costs = Direct Materials + Direct Labor
19. Total cost
Direct Cost Indirect Cost
Prime Cost Overhead
D.Mat D.Lab D.Exp In D. Mat InD Lab InD.Exp
25. Capital cost: benefits can be derived by
the business for more than one accounting
period
Revenue cost: benefits are exhausted in
the same period in which they are incurred
26. Inventorial costs.
The income statement does not have cost of
goods sold.
Revenues – Expenses = Operating income
27. First determine the number of turn over
units in a year:
3 units per month. 36 per year
Direct materials used were $200,000.
Direct labor was $88,000.
Overhead Costs (Do not include for this
example).
28. What is the cost per unit to lease-up?
Determine the Cost per Unit:
# of Turn over units 36
Direct materials 200,000
Direct labor 100,000
Overhead Costs 0 288,000
Divided by 36 units 36
Cost per unit to lease-up $8,000
29. Copy Machine
Paper & Toner
Salaries
Vehicle Lease vs. buying
Fuel
Any items or costs broken down by line item
can be analyzed
30. Identify major trends in the
Financials and use
cost-benefit analysis to make
business decisions.
31. Trend Analysis – Used to compare actual
costs from month to month.
FASS Scoring – Used to determine the
strength of your financials.
YTD Comparison – Used to compare a month
with the same month of the prior year.
Budget vs. Actuals - Used to determine if
your costs are within your budgeted costs.
32. Your PHA Other
To compare your PHA with another PHA, your
PHA must be similar in size and locality.
33. Budgeted cost: cost that represents an
estimate of expenditure
Actual cost: An actual amount paid or
incurred, as opposed to estimated cost or
standard cost. In a cost for leasing up a
unit, actual costs include direct labor, direct
material, and other direct charges.
