Bba 2003 - Cost Accounting

BBA 2003

COST ACCOUNTING

LEE CHI YEN

961231-56-5184

202284

AUGUST 2015

CONTENTS

Introduction

There is a cost involved to purchase or produce anything. Costs may be different for the same product, depending upon the phases of completion. The cost vicissitudes rendering to the stage a product is in, for example, raw material, work in progress, finished goods, etc. The cost of a creation cannot be perfect and it may vary for the equivalent product contingent upon dissimilar constraints and states of production and market. Cost accounting is a procedure of collecting, analyzing, summarizing and evaluating various substitute courses of action. Its objective is to counsel the administration on the most apposite course of action based on the cost effectiveness and aptitude. Cost accounting provides the comprehensive cost evidence that organization needs to control current operations and plan for the forthcoming. Some costs are actual, such as raw material cost, freight cost, labor cost, etc. Some expenditures are attributable to cost. To earn revenue, some expenses are invited like rent, salary, insurance, selling & circulation cost, etc. Some expenses are capricious, some are semi-variable, and some of fixed nature. Some costs are definite, such as raw material cost, freight cost, labor cost, etc. Some expenses are attributable to cost. To receive revenue, some expenses are suffered like rent, salary, insurance, selling & distribution cost and others. Some expenses are variable, some are semi-variable, and some of immobile nature.

Task 1

1.1 Identify and give examples of each of the three basic cost elements involved in the manufacture of a product.  

          In the engineering business, cost accounting is a fundamental obligation for accomplishing achievement. To be reasonable and gainful, a manufacturer must comprehend and governor the three basic rudiments of manufacturing costs – direct materials, direct labor and workshop overhead. Direct material is that material which we find in finished product and simply measures its cost. For example, for making furniture, woods are direct material and its cost will be the part of direct cost.

          Direct materials consist of all of the materials that become an essential part of the completed product. Direct materials should comprise the actual cost of the materials, as well as freight in, ingress duties, purchasing costs, receiving costs, storage costs and other directly attributable budgets of acquiring the resources. Direct materials should be chronicled net of any trade, amount or cash discounts qualified to the materials. Direct material sometimes erroneously called raw materials, is costs of that part of materials which forms part of a product produced for sale and which can be expediently identified with that product. Ail other materials used in a factory. Those which cannot be identified as forming part of a salable product are classified as indirect materials cost. 

          Direct labor contains of all of the workers costs compulsory to manufacture the finished product. Direct labor should comprise salaries, payroll taxes, and benefits related with personnel who are essential to industrial the finished product. Labor costs, also known as direct labor costs, refer to any funding given to employees who produce and build the products in request. Examples of labor include assembly line workers, engine operators and installation workers. Indirect labor denotes to personalities who are working for the business but have indirect roles in the engineering process. Indirect workers include janitors, supervisors and security guards. Labor costs that cannot be physically drew to the formation of products, or that can be traced only at a great cost and troublesomeness, are termed indirect labor and treated as part of manufacturing overhead, along with indirect materials.   

          “Factory overhead” may be said to signify all factory expenditure other than direct materials, direct labour and direct product expense. Factory overhead entails of all of the other costs compulsory to production the finished product that do not fit into the direct material or direct labor rudiments. They consist mainly of indirect material, indirect labor, depreciation, utilities, rent, repairs and maintenance and insurance.  Overhead costs are those associated with the manufacturing process, excluding the raw materials and labor funding. The machinery and equipment used to build the products must undergo frequent maintenance and funding must be available to complete repairs.     

1.2 Explain the difference between the following terms.

(a) Product cost and period cost

          Product costs are expenditures that a commercial incurs in obtaining raw materials and industrial a invention. You can also refer to them as production costs. Calculating the cost of a product is dangerous in determining that product’s price point. The commercial is looking to recover any expenses it incurred through production through sales. All other expenses a business invites that are not product costs are period costs. In a balance sheet, however, you will not bargain an entry for period costs. This is because the commercial treats them as any other expenditures that arise during a specific bookkeeping period. This is why the general term is period costs.

          The imperative transformation between product costs and period costs is that products costs are only incurred if products are developed or produced, and period costs are related with the passage of time. Thus, a commercial that has no manufacture or register purchasing events will incur no product costs, but will still incur period costs.

          Period costs are occasionally broken out into additional subcategories for selling events and administrative activities. Administrative activities are the most pure form of period costs, since they must be incurred on an ongoing basis, irrespective of the sales level of a business. Selling costs can vary somewhat with product sales levels, especially if sales commissions are a large part of this expenditure.