Cost Accounting

Cost accounting is defined as the process of accounting for cost which begins with the recording of income and expenditure and ends up with the preparation of periodical report for ascertaining and controlling cost.

  • relevant costs

    Relevant Cost – Meaning and Types

    Costs that are affected by the managerial decision are known as relevant cost.  Relevant costs for decision making are excepted future cost that will differ under various alternatives. The relevant cost concept helps the management to take the right decision by elimination the extraneous information from a particular decision-making process. Types of relevant cost The relevant costs are such as follow:- Future Cash FlowsAvoidable CostOpportunity Cost Increments Cost Future Cash Flow Any relevant cash flow that should arise in future. To evaluate the investment opportunities, a manager must determine the relevant cash flows such as incremental cash outflows or inflows. Any costs that occurred in the past are called suck cost. It should be excluded from the relevant cash flow. Avoidable Cost Avoidable costs are those cost which can be eliminated if the particular course of action is not taken or if any department is closed. For example, if an…

    Read More »
  • fixed overhead variance

    Fixed Overhead Variances in Cost Accounting

    Fixed overhead variance refers to the difference between the actual fixed production overheads and the absorbed fixed production overheads over a period of time. The variance can either be caused by a difference in the fixed overheads at a given level of activity or because of a difference in the number of units produced (which affects the absorption of the overheads). Because two different factors are affecting the total sales variance, they must be divided into the following 2 types (and the volume variance is also further subdivided as it is affected by 2 different factors): Fixed Overhead Expenditure Variance This is the difference between the actual and budgeted overheads.Formula to calculate Fixed Overhead Expenditure Variance is= Actual Overheads – Budgeted Overheads Fixed Overhead Volume Variance The fixed overhead volume variance is the difference between the budgeted fixed overhead and applied overheads. The volume variance measures the effect of the…

    Read More »
  • Assumptions and Limitations of CVP Analysis

    Assumptions and Limitations of CVP Analysis

    Cost-Volume-Profit (CVP) analysis is a method for systematically assessing the links between selling prices, total sales revenue, and the volume of production, expenses, and profit. CVP analysis can be critical in providing management with information about financial results when a specified level of activity or volume fluctuates, information about the relative profitability of the company’s various products, and information about the likely effects of changes in selling price and other variables. To be effective in planning and decision-making, management must have studies that enable reasonably accurate projections of how each of these aspects will affect earnings. Additionally, management must grasp how revenues, costs, and volume interact to generate profits. Cost-volume-profit analysis provides all of these analyses and information. This data can assist management in optimising the link between these variables. Similarly, CVP analysis can be used to determine selling prices, product mix selection, alternative marketing methods, and analyse the influence…

    Read More »
  • period costs

    What are non-manufacturing costs or period costs?

    Period costs (alternatively referred to as nonmanufacturing costs) are expenses incurred to maintain business operations but are not required or vital to the manufacturing process. They are matched to a specific time period’s revenues rather than being included in the cost of goods sold. Elements of Non-Manufacturing Costs Nonmanufacturing costs have two elements: marketing costs and administrative costs. Marketing costs are the costs required to obtain customer orders and provide customers with finished products. These include advertising, sales commissions, shipping costs, and marketing departments’ building occupancy costs. Administrative costs are the costsrequired to manage the organization and provide staff support, including executive and clerical salaries; costs for legal, financial, data processing, and accounting services; and building space for administrative personnel. Nonmanufacturing costs are expensed periodically (often in the period they are incurred) for financial accounting purposes. For managerial purposes, however, managers often want to see nonmanufacturing costs assigned to products.…

    Read More »
  • Cost Accounting, GAAP, and IFRS

    Cost Accounting, GAAP, and IFRS

    The primary purpose of financial accounting is to provide investors (for example, shareholders) or creditors (for example, banks) information regarding company and management performance. The financial data prepared for this purpose are governed by generally accepted accounting principles (GAAP) in the United States and international financial reporting standards (IFRS) in many other countries. GAAP and IFRS ensure that accounting data utilised for reporting reasons is consistent from one company to the next. This requires that cost accounting data used to calculate the cost of goods sold, inventory values, and other financial accounting data used in external reporting be provided in compliance with GAAP or IFRS. While GAAP and IFRS are convergent, distinctions persist. These distinctions are irrelevant to our topic for the reasons mentioned in the following paragraph, but you should be aware of them. Unlike cost data used for financial reporting to shareholders, cost data used for managerial purposes…

    Read More »
  • Differences between management accounting and tax accounting

    Differences between management accounting and tax accounting

    Financial accounting and reporting is only part of the broad field of accounting. Other significant kinds of accountinginclude management accounting and tax accounting. Management Accounting Management accounting is internal accounting designed to meet the information needs of managers. Although the same accounting system usually accumulates, processes, and disseminates both management and financial accounting information, managers’ responsibilities for making decisions and planning and controlling operations at various administrative levels of a business enterprise or not-for-profit organization require more detailed information than is considered necessary or appropriate for external financial reporting. Management accounting includes information that is normally not provided outside an organization and is usually tailored to meet specific managementinformation needs. Tax Accounting Tax accounting provides appropriate information needed by individuals, corporations, and others for preparing the various returns and reports required to comply with tax laws and regulations, especially the Internal Revenue Code. It is significant in the administration of…

    Read More »
Back to top button