Notes and Summaries for Cost and Management Accounting || 1
Absorbed Overhead: Overheads which, by means of absorption rates, in included in costs of specific products or saleable services, in a given period of time.
This notes contains more than 30 question answers and the important formulaes for Labour Costings
Job costing and process costing are the two methods of cost accounting. Job costing is applied where production is carried out under specific orders, depending upon customers requirement. Here each job is considered as a cost unit and to some extent the cost centre also.
Cost accounting is the application of accounting and costing principles, methods and techniques in the ascertainment of costs and the analysis of savings and/or excess as compared with previous experience or with standards.
CIMA defines Cost Accounting as ”the establishment of budgets, standard costs and actual costs of operations ,processes, activities or products, and the analysis of variances, profitability or the social use of funds.”
Budgets. A budget is a financial and/or quantitative statement, prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective & must be approved.
Cost plus contracts are advantageous both for the manufacturer and the customer, as neither party stands to lose. A fair price is offered to the customer and a reasonable profit accrues to the manufacturer.
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1. Cost allocation :
When items of cost are identifiable directly with some products or departments such costs are charged to such cost centres. This process is known as cost allocation. Wages paid to workers of service department can be allocated to the particular department. Indirect materials used by a particular department can also be allocated to the department. Cost allocation calls for two basic factors-(i) concerned department/product should have caused the cost to be incurred, and (ii) exact amount of cost should be computable.