Understanding Costing Session 1
-
Upload
brian-andrews -
Category
Documents
-
view
223 -
download
0
Transcript of Understanding Costing Session 1
-
8/11/2019 Understanding Costing Session 1
1/19
-
8/11/2019 Understanding Costing Session 1
2/19
Look after the centsAnd the dollars will look after themselves
-
8/11/2019 Understanding Costing Session 1
3/19
What is Costing?Costing is the process of :
Estimating the total resourceinvestment
required to merchandise,
produce
and market a product
Backbone of a firms success
Is managed by
successful controlling of costs aided by precise information
and utilization of the information.
-
8/11/2019 Understanding Costing Session 1
4/19
Costing and Cost accounting Costing : Techniques and processes of ascertaining costs.
Principles/Rules are applied for ascertaining costs of productsmanufacturedor service rendered .
Cost accounting : Determination and analysis of costs ofdepartments, processes, jobs, products, territories, orders etc
Need not be restricted for profit organizations
-
8/11/2019 Understanding Costing Session 1
5/19
Uses To control costs
Make revenue decisions-a) Pricing
b) Product mix
c) Profit volume decisions
-
8/11/2019 Understanding Costing Session 1
6/19
Uses Identify Profitable/ Non profitable operations
a) Pricing of new product
b) Eliminating seasonality
c) Expand/contract operationsd) Replacing machinery or equipment
e) Dropping a product
f) Distribution policies
g) Production methods
-
8/11/2019 Understanding Costing Session 1
7/19
Uses Formulation of budgets/standards and their execution
Managerial decision making and planning- Short term and Long term.
-
8/11/2019 Understanding Costing Session 1
8/19
Costing in the manufacturing
process Inputs( Factors of production) Outputs
RawMaterials
NaturalResources
HumanResources
Capital
Conversion
Process
Goods
Services
-
8/11/2019 Understanding Costing Session 1
9/19
Cost accounting and Management
accountingCost accounting:
Collecting, classifying, calculating , organizing, reporting and usingcosts
Used for decision making in resource allocation
Management accounting Focuses both on Historical and estimated data For ongoing operations and Long range planningIncludes costing but ALSO considers the preparation of other management
information-
a) Budgetsb) Forecastsc) Capital requirementsd) Evaluatione) Financial statisticsf) Profitability
-
8/11/2019 Understanding Costing Session 1
10/19
Financial accounting Financial accounting
Recording of financial information ( Transactions/events of a financialcharacter) for the production of periodic financial accounts.
Meets the needs of Investors, Creditors and external usersa) Revenue statement( Profit and loss)
b) Balance sheet
c) Taxation VAT, Corporation Tax, octroi etc
-
8/11/2019 Understanding Costing Session 1
11/19
Cost accounting and Financial
accountingCost accounting Financial accounting
Used by External users : Creditors,Stakeholders, analysts etc
Used by the management
Uses double entry system Single entry : Segmented and collatedinformation
Needs to use accounting principles Can use any principle which generatesuseful information.
UOM is monetary UOM can be money, labor hours,machine hours, Product units, SAMs
Fixed time period Need based
-
8/11/2019 Understanding Costing Session 1
12/19
Building blocks of cost calculation CAPITAL
Working capital is the money and assets (excluding fixed assets i.e.buildings, machinery) that a business uses to finance the day-to-dayoperations that produce the goods or services supplied to customers
Current assets: Debtors, Cash, stock
Net working capital :
Current assetsDebtors, Cash( a/c receivable) and Stock ( Inventory)
(less)
Current Liabilities:
Creditors, Loans and Tax =Net Working Capital
-
8/11/2019 Understanding Costing Session 1
13/19
Building blocks of cost calculation Identify which among these can be working capital
Stock :
Raw materialsWIP
Finished stock
Debtors
Cash
In hand
In the bank
-
8/11/2019 Understanding Costing Session 1
14/19
Building blocks of cost calculation EXPENDITURES
Capital expenditure : Yield benefit over a long period of time
Operating expenditure : Yield benefit in the immediate period
Identify which amongst these are Capital and Operating expenditure foran apparel concern
Washing unit
Softener for washing
Pintable
Cutting machine
Trade mark
-
8/11/2019 Understanding Costing Session 1
15/19
Building blocks of cost calculation DEPRECIATION
a) The cost of using the fixed assetsof the business for the periodcovered by the cost statement
b) A non-cash expense that reduces
the value of an asset as a result ofwear and tear, age, or
obsolescenceCapital expenditure cost is spread over
multiple periods and deducted
as an expense in each period.Identify areas of Depreciation in an
apparel factory
-
8/11/2019 Understanding Costing Session 1
16/19
Methods Job costing
Production per specific order orspecifications.
Each job is separate and distinct
from the others Batch costing
Contract/Terminal costing
Multiple/Composite costing
Process costing
Manufacture is donesimultaneously.
Costs cannot be traced easily to
specific units. Averaged fornumber of units manufactured
Unit/Single output
Operating costing
Operation costing
-
8/11/2019 Understanding Costing Session 1
17/19
Identify Building Job
Automobile Process
RMG Batch Cab service Operating
Road contractor Job
-
8/11/2019 Understanding Costing Session 1
18/19
Requirement Costing is required for
a) Determining the producability of a design within an established pricerange
b) To determine the profit potential of a designc) To determine if a style can be added to a line on the production f loor.
d) Establish a base for the selling price
e) Bid on Contracts
f) Analyze relative profitability of various products and services
g) Measure performance of subunits within the organization
-
8/11/2019 Understanding Costing Session 1
19/19