We discuss below the nature of short- run and long-run cost curves according to the modem theory. Cost accounting has long been used to help managers understand the of running a business. For example: A company produced railway coaches and had only one product. Mouck 1992 has stated that their basis is more of rhetoric than science and that for two researchers who spend so much time describing the benefits of empiricism the results are somewhat disappointing. Elasticity of Productivity Cost concepts: Costs are very important in business decision-making. When output is reduced, variable costs also diminish. Thus this is the cost of replacing existing assets at present or at a future date.
It is valued at cost. The percentage of wastage in each case is computed on the basis of Number of units entering the process concerned. In most companies, this assumption closely matches the actual flow of goods, and so is considered the most theoretically correct method. The various persons and parties interested in the business, like, the Government, public, investors, Money-lenders, Researchers etc. In contrast, full costs consist of opportunity costs and normal profit.
Under this system there is no need for a separate cost ledger. It shows us the future way of behavior regarding the happening of any special phenomenon. Firm Comparison l Marginal Costing Costâ?? In some accounting systems cost drivers are almost irrelevant in determining the contribution. It may not be economically feasible to ascertain cost per unit. Likewise, wheat and straw, cotton and cotton seeds may be its other examples. Topics are arranged in a logical order and the theory is dealt with in a simple style to make it student-friendly and self-understanding.
Accounting theory and Accounting Practices are absolutely closely related. The best system, if cost benefit, becomes useless. The main advantage of integrated accounts, are as follows: i Due to the use of one set of books, there is a significance extent of saving in efforts made. Meaning All direct costs other than direct material costs and direct labour costs are termed as direct expenses. The total cost of training section is thereafter apportioned to production c enters. In the long-run, firms expand their production, employ more men, materials, machinery and equipment.
The orders for the items, belonging to this category may be placed after reviewing their situation periodically. Failure to do so can lead to the closing of a business venture, due to poor cost computation, that may actually be profitable, or at least potentially profitable. Broadly, the purpose of cost audit can be classified as i Protective and ii Constructive. The primary objective is decision- making. Responsibility should be fixed on purchasing, storage, maintenance, production and inspection staff to maintain standards. The wastage of each process has a scrap value.
In other words, incremental cost is the total additional cost related to marginal quantity of output. It is continuous process of analysis of all the factors affecting cost. It should not sacrifice its utility by introducing meticulous and unnecessary, details 3 No. Its goal is to advise the on how to optimize business practices and processes based on cost efficiency and capability. Such a method of costing is used in the case of pharmaceutical or drug industries, readymade garments industries, industries ma nufacturing electronics parts of T. A periodical scrap report would serve the purpose where two or more departments or cost centres are responsible for the scrap; the reports should be routed through the departments concerned. The treatment of development expenses is same as that of applied research.
It has provided me homework help many times since then. Elasticity of Average Cost: The elasticity of total cost The following results follow from this: 1 If A: the elasticity of total cost is greater than, equal to or less than unity, the elasticity of average cost is greater than, equal to or less than zero-, and 2 the elasticity of total cost exceeds the elasticity of average cost by unity, i. When costs are presented in a statement form, various cost components may be shown in absolute amount or as a percentage of total cost or as per unit cost or all together. It facilitates effective control over the assets of the organisation. Reconciliation of Cost and Financial Accounts 11.
Conversely, this method also results in older being matched against current and recorded in the ; this means that the does not necessarily reflect a proper matching of revenues and costs. Thus, if a firm has obsolete stock of materials amounting to Rs. They are also called imputed costs. Execution of w ork Job work is executed factory pre mises. They are considered while finalising the profit and loss accounts. It serves as a work order to t production department and a document for computing the cost of material for a particular job work order to the cost department. This is natural because when constant total fixed costs are divided by a continuously increasing unit of output, the result is continuously diminishing average fixed costs.
It eliminates large balances left in overhead control accounts which indicate the difficulty of ascertaining an accurate overhead recovery rate. For example, the analysis can be used in establishing sales prices, in the product mix selection to sell, in the decision to choose marketing strategies, and in the analysis of the impact on profits by changes in costs. Limitations of Financial Accounting Overcome By Cost Accounting Forecasting and Planning Financial accounts cannot provide information required for future Budget technique of cost accounting overcomes this planning. Some examples are Advertisement, Salesmen remuneration, Show-room Expenses, Cost of samples etc. The evidence of diseconomies is much less certain.