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Objectives and Types of Cost Accounting System

Objectives and Types of Cost Accounting System

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Published by ClassOf1.com
The objectives of a cost accounting system are given below:
a) Ascertainment of cost;
b) Determination of selling price;
c) Cost control and cost reduction;
d) Ascertainment of profit of each activity and
e) Assistance provided in the decision making activity by the management.

The objectives of a cost accounting system are given below:
a) Ascertainment of cost;
b) Determination of selling price;
c) Cost control and cost reduction;
d) Ascertainment of profit of each activity and
e) Assistance provided in the decision making activity by the management.

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Published by: ClassOf1.com on Dec 19, 2013
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12/19/2013

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Cost ccounting
 
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The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for submitting the same in lieu of their academic submissions for grades.
Subject: Cost Accounting
 
Objectives and Types of Cost ccounting System
The objectives of a cost accounting system are given below: a)
 
 Ascertainment of cost;  b)
 
Determination of selling price; c)
 
Cost control and cost reduction; d)
 
 Ascertainment of profit of each activity and e)
 
 Assistance provided in the decision making activity by the management.  When it comes to different types of costing, the following are found to be of importance: a)
 
Conversion cost
: It is the cost incurred to convert the raw materials into finished goods and it is the sum of direct wages, direct expenses and manufacturing overheads;  b)
 
Sunk costs
: The historical costs or the costs incurred in the past are known as sunk cost and they play no role in the current decision making process and they are termed as irrelevant costs. For example, in the case of a decision relating to the replacement of a machine, the written down value of the existing machine is a sunk cost and therefore not considered; c)
 
Opportunity cost
: It refers to the value of sacrifice made or benefit of opportunity foregone in accepting an alternative course of action. For example, it may be a firm financing its expansion plan by withdrawing the money from its bank deposits. Under such circumstances, the loss of interest on the bank deposit is the opportunity cost for carrying out the expansion plan. The following are the cost classifications based on variability:
Fixed cost
: There are costs, which do not change in total despite changes of a cost driver. A fixed cost is fixed only in relation to a given relevant range of the cost driver and a given time
 
 *
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for submitting the same in lieu of their academic submissions for grades.
Subject: Cost Accounting
 
span. The rent, insurance, depreciation of factory building and equipment are examples of fixed costs where the final product produced is the cost object.
 Variable costs
: These are costs which change in total in proportion to changes of cost driver. The direct materials and direct labor are examples of variable costs in cases where the final product produced is the cost object;
Semi variable costs
: These are partly fixed and partly variable in relation to output. The telephone and electricity bills can be cited as examples for the above.
The following are cost classification based on controllability: Controllable costs:
They are costs incurred in a particular responsibility center and relate to a defined time span. They can be influenced by the action of the executive heading the responsibility center. The direct taxes can be cited as examples for the above.
Uncontrollable costs:
 They are costs which are influenced by the action of the responsibility center manager. For example, the expenditure incurred by the tool room are controllable by the foreman in charge of that section; however, the share of tool room expenditure which are apportioned to the machine are not controllable by machine shop foreman.

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