Knowledge in Costing
Method of Costing
METHOD OF COSTING MEANING: There are various method or type of costing , but the basic principal underlying all these methods or type are the same .The basic principal are to collect and analyse the expenditure according to elements of cost and to determine the cost for each cost center or cost unit . The nature of the manufacturing operation carried out of the nature of the services rendered by a concern decides the method applicable to it . Broadly speaking , there are three main method of costing ---1. job costing , process costing , and farm costing , the other are either variants of these three method or are techniques use for a particular purpose under particular condition . METHOD OF COSTING 1. JOB COSTING 2. PROCESS COSTING 3. FARM COSTING 1. JOB COSTING : Under this method , the cost unit is taken to be a job ,small or big , comparison of a definite quantity of a product manufactured . So , the approach is product approach . Job costing system is used where it is desired to ascertain the cost of a job or a specific order or of a batch of finished goods and also profit or loss each such job . Thus , painters , publisher , machine tool manufacturers , caterers , job foundries , builders etc . use job costing system . 2. PROCESS COSTING : Process represents type of costing for continuous and mass production industry . In such industry output consists of like unit each unit being process in same manner . Therefore it is assumed that all same amount of material , labour and overhead is chargable to each unit processed . cost are assumulated on the process basic records of unit product are variable . 3. FARM COSTING : The agriculture farms are quite different from the manufacturing industry in many respect . Manufacturing industry used standard plants which gives standard output .Plant of a farm is highly influenced by climate , rainfall , nature of manuring , nature of labour used at different stages from showing to harvesting , nature of seeds used etc . Manufacturing product are not influenced by these factors . Another peculiarity of a farm is that output of a period in part at least , is used as the input of the period following . paddy potato ,onion etc . produced in one year are preserved for using them as seeds in the next year.
Mousumi Manna
Type of costs in cost accounting
cost accountingAns:Cost accounting is an accounting process that measures and analyzes the costs associated with products, production, and projects, so that correct amounts are reported on a company's financial statements. Cost accounting aids in decision-making processes by allowing a company to calculate, evaluate, and monitor its costs.Below are some of the types of costs used in cost accounting:1. Direct Costs Direct costs are related to producing a good or service. A direct cost includes materials, labor, expense, or distribution cost associated with producing a product. It can be easily traced to a product, department or project. For example, Ford Motor Company manufactures cars and trucks. A plant worker spends eight hours building a car. The direct costs associated with the car are the wages paid to the worker and the parts used to build the car.2. Indirect CostsIndirect costs, on the other hand, are expenses unrelated to producing a good or service. An indirect cost cannot be easily traced to a product, department, activity or project. For example, with Ford Motor Company the direct costs associated with each vehicle include tires and steel. However, the electricity used to power the plant is considered an indirect cost because the electricity is used for all the products made in the plant. No one product can be traced back to the electric bill.3. Fixed CostsFixed costs do not vary with the number of goods or services a company produces. For example, suppose a company leases a machine for production for two years. The company has to pay Rs. 2,000 per month to cover the cost of the lease. The lease payment is considered a fixed cost as it remains unchanged.4. Variable CostsVariable costs fluctuate as the level of production output changes, contrary to a fixed cost. This type of cost varies depending on the number of products a company produces. A variable cost increases as the production volume increases, and it falls as the production volume decreases. For example, a toy manufacturer must package its toys before shipping products out to stores. This is considered a type of variable cost because, as the manufacturer produces more toys, its packaging costs increase. However, if the toy manufacturer's production level is decreasing, the variable cost associated with the packaging decreases5. Operating CostsOperating costs are expenses associated with day-to-day business activities but are not traced back to one product. Operating costs can be variable or fixed. Examples of operating costs, which are more commonly called operating expenses, include rent and utilities for a manufacturing plant. Operating costs are day-to-day expenses, but are not classified as costs of producing the products. Investors can calculate a company's operating expense ratio, which shows how efficient a company is in using their costs to generate sales.6. Opportunity CostOpportunity cost is the benefit given up when one decision is made over another. In other words, an opportunity cost represents an alternative given up when a decision is made. This cost is, therefore, most relevant for two mutually exclusive events. In investing, it's the difference in return between a chosen investment and one that is passed up. For companies, opportunity costs do not show up in the financial statements but are useful in planning by management. For example, if a company decides to buy a new piece of manufacturing equipment rather than lease it. The opportunity cost would be the difference between the cost of the cash outlay for the equipment and the improved productivity versus how much money could have been saved had the money been used to pay down debt.7. Sunk CostsSunk costs are historical costs that have already been incurred and will not make any difference in the current decisions by management. Sunk costs are those costs that a company has committed to and are unavoidable or unrecoverable costs. Sunk costs (past costs) are excluded from future business decisions because the costs will be the same regardless of the outcome of a decision.8. Controllable CostsControllable costs are expenses managers has control over and have the power to increase or decrease. For example, deciding on how supplies are ordered or the payroll for a manufacturing company would be controllable, but not necessarily avoidable.
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