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Questions and Answers
What are the objectives of cost accounting?
The objectives of cost accounting include cost ascertainment, cost control, and decision-making.
What are the methods of material pricing used in cost accounting?
The methods of material pricing include FIFO, LIFO, and Average costing.
Explain the concept of Job Costing.
Job costing involves accumulating costs for each specific job or order separately.
What is the purpose of using Absorption Rates in cost accounting?
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How are Labour Costs controlled in cost accounting?
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Explain the concept of Overhead Absorption.
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What are the different methods of material pricing used in cost accounting?
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What are the various techniques of material control in cost accounting?
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Name the different methods of wage payment and the Incentive schemes used in cost accounting.
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What are the different types of overheads in cost accounting and how are they classified?
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Explain the concept of labour turnover in cost accounting.
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What is meant by under absorption and over absorption of overheads in cost accounting?
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Study Notes
Objectives of Cost Accounting
- Provide accurate cost data to aid management in decision-making.
- Assist in budgeting and forecasting processes.
- Help identify inefficient operations and areas for cost reduction.
- Facilitate cost control and cost reduction strategies.
Methods of Material Pricing
- FIFO (First In, First Out): Assumes earliest purchased materials are used first.
- LIFO (Last In, First Out): Assumes most recently purchased materials are used first.
- Weighted Average Cost: Averages the cost of all materials available for sale.
- Standard Costing: Uses predetermined costs for materials, simplifying budgeting and variance analysis.
Job Costing Concept
- Assigns costs to specific jobs or batches of products.
- Useful in industries like construction and custom manufacturing.
- Tracks all expenses related to a particular job, including materials, labor, and overhead.
Purpose of Absorption Rates
- Allocates fixed and variable overhead costs to products, ensuring all production costs are reflected in the product's cost.
- Helps in pricing products and assessing profitability.
- Aids in inventory valuation for financial reporting.
Control of Labour Costs
- Implementing time-tracking systems to monitor labor hours.
- Analyzing labor variances by comparing actual costs to budgeted costs.
- Creating proper staffing schedules to optimize labor expenses without overstaffing.
Overhead Absorption Concept
- The process of allocating overhead costs to cost units based on a predetermined rate.
- Ensures all overhead costs are accurately reflected in product cost.
- Prevents discrepancies between costs incurred and costs charged to products.
Material Control Techniques
- Economic Order Quantity (EOQ): Calculates optimal inventory levels to minimize holding and ordering costs.
- Just-In-Time (JIT) Inventory: Reduces inventory holding costs by receiving materials only as needed.
- Inventory Audits: Regular checks of on-hand inventory to ensure accuracy in inventory records.
Methods of Wage Payment and Incentive Schemes
- Time Rate: Paying workers based on the time worked.
- Piece Rate: Payment based on the number of units produced.
- Commission-Based: Earnings linked to sales performance.
- Incentive Schemes: Bonuses linked to meeting or exceeding production or profitability targets.
Types of Overheads and Classification
- Fixed Overheads: Costs that do not change with production levels, such as rent.
- Variable Overheads: Costs that vary directly with production, such as utility costs.
- Semi-variable Overheads: Mix of fixed and variable elements, like maintenance costs.
Labour Turnover Concept
- Measures the rate at which employees leave and are replaced in an organization.
- High turnover can indicate issues with employee satisfaction or retention strategies.
- Analyzing turnover rates helps manage human resources more effectively.
Under Absorption and Over Absorption of Overheads
- Under Absorption: Occurs when actual overhead costs exceed absorbed costs, leading to potential losses.
- Over Absorption: Happens when absorbed costs exceed actual overheads, which may inflate profit figures.
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Description
Test your knowledge on basic concepts in cost accounting, including methods of cost ascertainment and implementation of costing systems. Topics covered include cost concepts, cost sheets, job costing, and more.
