Basic Flashcards
Cost Accounting
Cost Accounting is the branch of accounting that keeps track of a company’s cost in such a manner that it enables company to determine cost of product, service or process
Management Accounting
Provide critical information to management to be used in operational business decision making. It helps the management to perform all its function including planning, organizing, staffing, directing, controlling etc.
Material
The cost of commodities supplies to and used by an organization
E.g. Raw cotton used in a textile mill
Labour
The cost paid by an organization to its employees against using their service
E.g. salary paid to storekeeper and accountant, wages paid to production workers etc
Other Expenses
Any amount spent for the purpose of business which is neither for acquiring material and nor against service provided by an employee is classified as expense.
E.g. Rent of factory, electricity bill etc
Production/Manufacturing cost
It is the directly incurred by a business organization in the process of producing a product or providing a service.
E.g. Raw material, labour etc
Non Production cost
Non Production cost refer to those cost incurred outside the factory or production department. These are cost needed in transferring raw materials into finished goods
E g. Selling cost, Administration cost, Distribution cost, marketing cost and finance cost
Direct Cost
It is the part of production cost that can be directly traced with accuracy to specific cost object (product)
E.g. Raw material, labour or fee paid to a sub contractor
D.M +D.L+D.E =Prime Cost
Indirect Costs
It is that part of cost that cannot be directly traced to a specific product.
E.g. Tools, Salaries, Factory rent, electricity bill and utilities etc
Sum of Indirect Costs is also known as Overhead
Variable Cost
A fixed Cost are costs that tend to vary in total with the level of activity. As Activity level increase then total variable costs will also increase.
Fixed costs
A fixed Cost is a cost that is incurred for an accounting period, and which remains constant with the change in activity.
Semi Variable/Semi Fixed Cost
Semi Variable cost contain both fixed and variable Cost elements and are therefore partly affected by fluctuations in the level of activity.
IAS 2
Accounting standard on inventories encourages the use of absorption costing in valuing inventory when required for preparing Financial Statements.
Absorption Costing
It is a process using which Production Overheads are recovered by absorbing them into the cost of a product and this process is therefore called Absorption Costing
