Podcast
Questions and Answers
What is the primary objective of cost accounting?
What is the primary objective of cost accounting?
Which of the following is an example of a fixed cost?
Which of the following is an example of a fixed cost?
What is the purpose of job costing?
What is the purpose of job costing?
What is the break-even point?
What is the break-even point?
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What is the focus of cost-volume-profit (CVP) analysis?
What is the focus of cost-volume-profit (CVP) analysis?
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Which of the following is a cost reduction strategy?
Which of the following is a cost reduction strategy?
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What is the purpose of budgeting in cost accounting?
What is the purpose of budgeting in cost accounting?
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What is activity-based costing (ABC)?
What is activity-based costing (ABC)?
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Study Notes
Cost Accounting
Definition
- Cost accounting is a branch of accounting that deals with the calculation and management of costs incurred by a business.
- It involves the identification, classification, and allocation of costs to determine the cost of products, services, or projects.
Objectives
- To determine the cost of production or services
- To identify areas of cost reduction and improvement
- To provide cost information for decision-making
- To evaluate the performance of different departments or products
Types of Costs
- Fixed Costs: costs that remain unchanged despite changes in production or sales, e.g. rent, salaries
- Variable Costs: costs that vary with changes in production or sales, e.g. raw materials, labor
- Direct Costs: costs directly associated with the production of a product or service, e.g. labor, materials
- Indirect Costs: costs not directly associated with the production of a product or service, e.g. overheads, administrative costs
Cost Accounting Methods
- Job Costing: cost accounting method that tracks the cost of each job or project
- Process Costing: cost accounting method that tracks the cost of each process or stage of production
- Activity-Based Costing (ABC): cost accounting method that assigns costs to products or services based on the activities they require
- Standard Costing: cost accounting method that uses predetermined costs to estimate the cost of production
Cost Analysis
- Cost-Volume-Profit (CVP) Analysis: analysis of the relationship between cost, volume, and profit
- Break-Even Analysis: analysis of the point at which revenue equals total fixed and variable costs
- Marginal Analysis: analysis of the additional cost and revenue of producing one more unit
Cost Control
- Budgeting: process of establishing cost targets and limits
- Cost Reduction: strategies to reduce costs, e.g. process improvement, outsourcing
- Variance Analysis: analysis of the difference between actual and standard costs
Cost Accounting
Definition
- Deals with the calculation and management of costs incurred by a business
- Involves identification, classification, and allocation of costs to determine the cost of products, services, or projects
Objectives
- Determine the cost of production or services
- Identify areas of cost reduction and improvement
- Provide cost information for decision-making
- Evaluate the performance of different departments or products
Types of Costs
- Fixed Costs: remain unchanged despite changes in production or sales (e.g. rent, salaries)
- Variable Costs: vary with changes in production or sales (e.g. raw materials, labor)
- Direct Costs: directly associated with the production of a product or service (e.g. labor, materials)
- Indirect Costs: not directly associated with the production of a product or service (e.g. overheads, administrative costs)
Cost Accounting Methods
- Job Costing: tracks the cost of each job or project
- Process Costing: tracks the cost of each process or stage of production
- Activity-Based Costing (ABC): assigns costs to products or services based on the activities they require
- Standard Costing: uses predetermined costs to estimate the cost of production
Cost Analysis
- Cost-Volume-Profit (CVP) Analysis: analyzes the relationship between cost, volume, and profit
- Break-Even Analysis: analyzes the point at which revenue equals total fixed and variable costs
- Marginal Analysis: analyzes the additional cost and revenue of producing one more unit
Cost Control
- Budgeting: establishes cost targets and limits
- Cost Reduction: strategies to reduce costs (e.g. process improvement, outsourcing)
- Variance Analysis: analyzes the difference between actual and standard costs
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Description
Learn about cost accounting, its objectives, and how it helps businesses determine costs, identify areas for improvement, and make informed decisions.
