What do you understand by Cost?
In terms of accounting, the cost is usually defined as cash amount, which is given, so that profit can be received on the same amount. The definition of cost may vary from seller to buyer.
From a seller’s perspective, the definition of cost is the amount of money or cash that is spent on the production of goods or services offered.
From a buyer’s point of view, the cost which is usually charged by the seller is called as price. And the price includes production cost and market price (mark-up) which are added together to earn a profit (in context with the seller).
At times students get confused with the terms or may find difficulty in solving the question, in that situation cost accounting assignment help become the need of the hour. Mentyor is one of the leading homework providers, helping a large number of students.
What is Cost Accounting
It is a process, which measures and analyses the costs, as it is very important for the smooth running of any business. That is cost accounting involves recording, classifying the data, then analysing, making the summary and allocating costs associated with the process, and then devising ways to control the costs. So, to be precise, the cost accounting is associated with products, production, and the projects, so that the correct amount is reported in the financial statement of the company. Not only this, cost accounting helps in decision- making the process by correct means.
After understanding the cost, and what really is cost accounting the next point which comes in the queue is the types of cost.
Different types of cost with examples
As per our experts, cost or cost accounting is divided into 8 types. Let’s understand in detail, the types of cost:
- Direct costs
- Indirect costs
- Fixed costs
- Variable costs
- Operating costs
- Opportunity costs
- Sunk costs
- Controllable costs
Let’s understand in detail about these types: -
- Direct costs- it is directly linked with the production of goods and services. The direct costs that include the cost of materials, expenditure done on labour, or any other expenses associated with the production of the final product.
For example, Maruti Suzuki company is the manufacturer of cars, a site worker spent 10 hours building a car. The direct cost would be wages paid to the worker along with the expenditure done on parts, which are used for building the car.
- Indirect costs- talking of the indirect taxes, which mainly includes expenses not related to producing goods or offering any service.
For example, in Maruti Suzuki company, the direct tax covers the costs linked with each vehicle (that is tires and steel). Whereas the electric power which is used to power the plant is considered an indirect cost.
- Fixed costs- this doesn’t vary with a number of goods or services that company offers. Let’s say, if a company takes a machine on lease for two years, so as to carry out the production. So, the company is going to pay $1500 per month to cover the costs of the lease, and this payment is usually kept fixed.
- Variable costs- unlike fixed costs, the value may change as per the production. The cost varies with a number of products a company may produce. For example, if a toy manufacturing company produces 60 toys, then let’s say the total cost came out to be as 12000. And if this number increases then the cost would rise or vice-versa.
- Operating costs- it is associated with daily based activities. The cost can be variable or fixed. Examples which comes under the operating costs include rent and other utilities which are required in the manufacturing plant.
- Opportunity cost- it is been given when the decision is already made over another. It has been most commonly observed that opportunity costs don’t take any place in financial statements, but then it is useful in planning by management. For example, let’s say a company is planning to buy an equipment rather than using it in on the lease, the opportunity cost would be calculated by taking out the difference between the cost of cash and how much money can be saved if the money was used to pay off the debts.
- Sunk costs- they are old costs, which has happened in the past, and if those costs are included, not going to hamper or make any difference in the current decision taken by the management. Unavoidable or uncoverable costs come under the example of sunk cots.
- Controllable costs- the decision of controllable cost is usually taken care of by the expense managers. They can either increase the controllable cost or decrease it. For example, how supplies are ordered, is take care of expense manager, which has an impact on controllable costs.
Elements of Cost
As per the Mentyor cost accounting assignment help guides, the most important exercise of costing is to fix the cost of goods, which is meant to be sold. So, if you want to understand or calculate the cost of goods, we must learn three basic elements of cost. And those are direct material cost, direct labour cost and manufacturing overhead costs.
Let’s have a closer look at the elements in detail:
- Direct material cost- it is the sum total of cost of the all the raw materials which are involved in the manufacturing or making of the product. Want to learn more about the same, then contact our experts.
- Direct labour cost- total costs of the work done by labours, who are responsible for making the product is part of direct labour cost.
- Manufacturing overhead costs- it is the sum total of all the costs which are related to the cost object but can’t be directly traced back to the cost object or product in an economical way. Finally, it must be added to the final cost. Wait, are you still confused, well, take the help from Mentyor, and bid goodbye to your worries regarding cost accounting assignment help. Or in any case, if you are not convinced enough, then continue to read the post.
After completing the elements, the next thing is COGS, let’s understand this from our expert’s point if view.
How to determine the costs of goods sold (COGS)
Cost of goods sold to a buyer is an interesting concept, but there are some students who are not comfortable with learning these things in one go. They often require time, to absorb the concepts, but not to worry, we are here to reduce the burden from your shoulder.
The experts at Mentyor will assist you in solving the queries related to the cost accounting assignment in a very easy manner.
Take a look at the steps how you can actually calculate the cost of goods sold on your own:
- First of all, you will have to calculate, the number of units manufactured and the costs of those items per unit.
- If you want to count the number of units manufactured, start from the very beginning of the process. And then you need to add this number to the number of units produced and take out the total number of units at the end of the work in the process from the earlier calculated sum.
No. of units in the initial stage of the work in process+ No. of units manufactured -No. of units at the end of the process = No. of units manufactured.
You have the number of units manufactured, then you need to calculate the cost of goods which are manufactured.
- In the 3rd step, the cost of manufactured goods is calculated.
Cost at the beginning of the process + Production cost – Cost at the end of the process = costs of goods manufactured.
Now we have a number of units manufactured and cost of goods manufactured. Now you can divide them, and then you will get COGS per unit.
Types of Cost Accounting
- Standard cost accounting- as per our experts, it involves the substituting an expected cost for real cost in the records of accounting. And then from time to time, variations are recorded, which shows the difference between the actual and expected costs.
- Lean accounting- it is basically the collection of principles and processes which helps in providing numerical feedback to the manufacturers so that they can implement lean manufacturing and lean inventory practices. Importance of lean accounting is that it helps in reflecting the financial performance of the company, which may include organizing costs.
- Activity-based accounting- it is a methodology, which aims to identify ongoing activities and assign the cost of each and every activity with respective products and services, as per the actual consumption. This leads to an accurate pricing decision.
- Target costing- it is also one of the methods of costing, which mainly involves determining the prices as per the market conditions. And the price of goods is determined by several factors, for instance, homogenous products, level of competition and no or low switching costs.
- Resource consumption accounting- it is one the management theory, that describes a dynamic, integrated and comprehensive accounting approach. And this consecutively helps managers in making the decision and supporting the decision for optimization of the business or the enterprise.
- Life cycle assessment- it is a method to assess the environmental effects on all the stages of products and product’s life which are obtained from the raw materials. The product making undergoes various stages such as manufacturing, processing, distribution, use, repair, and many other steps.
- Environmental accounting- it is a subset of accounting, that is meant for identifying the use of the resource. The environmental accounting also measures and takes out the relation of resources in the environment.
To learn more about them in detail, you can take the help of Mentyor experts. They are going to help with amazing and unique solutions.
What are the benefits of Cost Accounting?
Talking of the advantages there are many benefits of cost accounting, let’s take a look at the rundown to gain a clear view of the scenery:
- Cost object analysis, to identify what all are profitable for the company.
- Discover causes, that it helps in locating the problems and also offering valid and authentic solutions, which ultimately benefits the company.
- Modelling of the costs is also covered by the cost accounting.
- Inventory Valuation.
The list can go endless, and if you want to know more about the advantages of the cost accounting, you can reach out for Mentyor. They are one of the excellent cost accounting assignment help providers.
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