different type of costs
Post on 29-May-2018
214 Views
Preview:
TRANSCRIPT
-
8/8/2019 Different Type of Costs.
1/21
ManagementAccounting:
A Road of Discovery
Presentations by:
Syed Tauseef Raza (SNHU &ITM)
-
8/8/2019 Different Type of Costs.
2/21
Needs Determine the Form of
Accounting Data
Managers need changing information to meetchanging needs!
Types of Accounting Systems
Financial Accounting Rules and procedures
Accounting information systems and internal controls
Auditing
Cost Accounting Product costing
Activity-based costing
-
8/8/2019 Different Type of Costs.
3/21
What is Management
Accounting?
Accounting for Planning,
Control, and Evaluation
-
8/8/2019 Different Type of Costs.
4/21
Whats COST ?
Cost means the amount of
expenditure incurred.
-
8/8/2019 Different Type of Costs.
5/21
Problems in Identifying and
Measuring BenefitsHow do I measure
the benefit of
employee training?
How do I measure
the benefit of
employee training?
What is the
monetary benefit of
a happy customer?What is the
monetary
benefit of animproved
working
environment
?
What is the
monetary
benefit of animproved
working
environment
?
How do I
measure the
benefit of
improved
quality?
-
8/8/2019 Different Type of Costs.
6/21
Problems in Identifying and
Measuring Costs
What is the cost of
a dissatisfied
customer?
How do I
measure thecost of setting
my price too
high?
How do I measure
the cost of poor
quality?
What is the cost
of postponingthis years
training
program?
-
8/8/2019 Different Type of Costs.
7/21
Cost Classification and Cost
Behavior
SMBA 01
Fall 2010SNHU & ITM
-
8/8/2019 Different Type of Costs.
8/21
Cost Classifications for Predicting
Cost Behavior
By reaction to changes in the level ofactivity within the relevant range.
Total variable costs change when activitychanges.
Total fixed costs remain unchanged when
activity changes.
-
8/8/2019 Different Type of Costs.
9/21
Variable Cost
Raw materials
Direct labor
Power and fuel
Packing material
Product consumables.
-
8/8/2019 Different Type of Costs.
10/21
Fixed Cost
Factory /Office/Go down Rent
Staff/Management Salaries
Depreciation
Annual maintenance contracts
Legal fees
Director fees
Auditors fees Property tax
Printing and stationary costs
Interest on loans
-
8/8/2019 Different Type of Costs.
11/21
ON THE BASIS OF MANAGERIALDECISIONMAKING
MARGINAL COSTS
SUNK COSTS
IMPUTED COSTS
OPPORTUNITY COSTS
AVOIDABLE COSTS
UNA
VOIDABL
ECOSTS
DIFFERENTIAL COSTS
-
8/8/2019 Different Type of Costs.
12/21
The marginal cost of an additional unit of output is the cost of the additionalinputs needed to produce that output.
Marginal cost and average cost can differ greatly. For example, suppose itcosts $1000 to produce 100 units and $1020 to produce 101 units. Theaverage cost per unit is $10, but the marginal cost of the 101st unit is $20
Marginal Cost (MC)
-
8/8/2019 Different Type of Costs.
13/21
Imputed costs a.k.a implicit costs.
Implicit Cost + Explicit Cost = Total Cost.
E.g.
Tauseef builds a cabinet. He spends 2 hours building the cabinet. He couldhave been working instead and normally makes $25/hour at his job. Since hewas building a cabinet he wasn't paid for this time. The materials to makethe cabinet cost him $20.
His Explicit Costs are: $20 in materials
His Implicit Costs are: $25/hr x 2 hrs= $50 of foregone pay
IMPUTED COSTS (IC)
-
8/8/2019 Different Type of Costs.
14/21
Definition of Avoidable Cost: A cost that can be avoided by not producing aparticular good. For example, if you are building cars, an avoidable costs
would be the raw materials.
If you stopped producing a car, you would no longer have to pay for the rawmaterials such as steel and aluminium. However, other costs of a firm maybeunavoidable, at least in the short term. For example, the firm still has thefixed costs such as rent and paying some safety workers.
For this reason avoidable costs are often variable costs.
Avoidable and unavoidable costs
-
8/8/2019 Different Type of Costs.
15/21
Differential cost is only calculated for decision making.
For example:
If the work is done in machine the cost is Rs. 2,55,000/- if the work is donewith the labor the cost will be Rs. 2,00,000/- the differential cost is Rs.55,000.
Differential Costs
-
8/8/2019 Different Type of Costs.
16/21
Opportunity Costs
The potential benefit that is given up when onealternative is selected over another.
Example: If you were not attending this
program, you could save $10,000 per year.Your opportunity cost?
-
8/8/2019 Different Type of Costs.
17/21
Sunk Costs
Sunk costs have already been incurred and cannotbe changed now or in the future. They should
be ignored when making decisions.
E
xample: You bought an automobile that cost$10,000 two years ago. The $10,000 cost issunk because whether you drive it, park it, tradeit, or sell it, you cannot change the $10,000 cost.
-
8/8/2019 Different Type of Costs.
18/21
COSTSHEETDIRECT MATERIALDIRECT LABOUR
DIRECT EXPENSES
PRIME COSTFACTORY OVERHEADS
FACTORY COSTOFFICE OVERHEADS
COST OF PRODUCTIONSELL & DIST OVERHEADS
COST OF SALESPROFIT
SALES
-
8/8/2019 Different Type of Costs.
19/21
Summary of the Types of Cost
Classifications
Financial reporting
Predicting cost behavior Products- determining unit costs
Decision making
-
8/8/2019 Different Type of Costs.
20/21
The Goal of Good Management is
to CreateV
alue
Cost Management is applying the valuecriteria to every decision we make, every
activity we perform, and every process wecomplete.
Management accounting systems are used toenhance both decision making and
management control. Management accounting systems do not
need to be perfect, only good enough toincrease value.
-
8/8/2019 Different Type of Costs.
21/21
Any Query ?
Thank You
top related