145411
Description
Mind Map by Shahid Musthafa, updated more than 1 year ago
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Created by Shahid Musthafa
over 11 years ago
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Traditional &
Advanced
Costing Methods
- Activity Based Costing
- The best example of where activity costs are
tracked and studied is in manufacturing. Given
a plant which produces many different
products, financial managers are tasked with
the problem of how to accurately assign
production costs to each product. Using
activity-based costing is a popular method for
assigning costs since it is a good compromise
between efficiency and accuracy. Assigning
costs accurately is important to determine the
profitability of products and subsequently, to
make rational production decisions.
- The best example of where activity costs are
tracked and studied is in manufacturing. Given
a plant which produces many different
products, financial managers are tasked with
the problem of how to accurately assign
production costs to each product. Using
activity-based costing is a popular method for
assigning costs since it is a good compromise
between efficiency and accuracy. Assigning
costs accurately is important to determine the
profitability of products and subsequently, to
make rational production decisions.
- Absorption Costing
- The aim of the Absorption
costing is to calculate the full cost
of production (I.e, it does not take
into account the
Non-manufacturing costs )
- Production Costs
- prime costs
- Direct labour
- Direct Materials
- Direct labour
- Indirect Costs
- The Role of AB Costing comes while
allocation of the Indirect costs ,its a
difficult process that i had practiced
:-)
- The Role of AB Costing comes while
allocation of the Indirect costs ,its a
difficult process that i had practiced
:-)
- prime costs
- All production overheads must be
absorbed into units of production, using
a suitable basis, e.g. units produced,
labour hours or machine hours. The
assumption underlying this method of
absorption is that overhead expenditure
is connected to the volume produced.
- The aim of the Absorption
costing is to calculate the full cost
of production (I.e, it does not take
into account the
Non-manufacturing costs )
- Misc Information
- Purpose of Costing
- Value
inventory
- The cost per unit
can be used to
value inventory in
the statement of
financial position
(balance sheet).
- The cost per unit
can be used to
value inventory in
the statement of
financial position
(balance sheet).
- Record costs
- The costs associated
with the product need to
be recoded in the
income statement.
- The costs associated
with the product need to
be recoded in the
income statement.
- Price products
- The business will use the cost per unit to assist
in pricing the product. For example, if the cost
per unit is $0.30, the business may decide to
price the product at $0.50 per unit in order to
make the required profit of $0.20 per unit.
- The business will use the cost per unit to assist
in pricing the product. For example, if the cost
per unit is $0.30, the business may decide to
price the product at $0.50 per unit in order to
make the required profit of $0.20 per unit.
- Make decisions
- business will use the cost
information to make important
decisions regarding which
products should be made and
in what quantities.
- business will use the cost
information to make important
decisions regarding which
products should be made and
in what quantities.
- Value
inventory
- Purpose of Costing
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