Cost Accounting System
a) COST ACCOUNTING
Cost accounting system is the part of management accounting that makes budget, actual cost of operations, analysis of variance and profitability of social use of funds. Cost accounting helps the manager in decision making regarding the reduction of the cost of the company and in improving the profitability. Cost accounting system is primarily used for internal managers therefore it does not need to follow the standards of GAAP. Cost accounting is also considered very important for the translation of supply chain into financial values.
(b) DIRECT COST
Direct cost is a costs which can be directly identified with a job, product or service. It may be fixed or variable and may be charged against a product, a sales program, a customer account, or a marketing plan. Besides that, direct costs (such as for labor, material, fuel or power) vary with the rate of output but are uniform for each unit of production, and are usually under the control and responsibility of the department manager. As a general rule, most costs are fixed in the short run and variable in the long run. Examples of direct cost such as direct materials, direct wages or direct labour cost and direct expenses.
• direct materials – raw materials used in a product, bought in parts and assemblies incorporated into the finished product, carriage inwards.
• direct wages – the remuneration paid to production workers for work directly related to production.
• direct expenses – expenses incurred specifically for a particular product e.g. royalties paid per unit for a copyright design, plant or tool hire charges for a particular job.
As a result, direct costs = prime cost = direct material + direct wager + direct expenses.
For example, the cost of rice in a fried rice should be attributed directly to the cost of manufacturing that product. Other costs, such as administrative expenses, are more difficult to assign to a specific product. So that not consider as a
Cost accounting system is the part of management accounting that makes budget, actual cost of operations, analysis of variance and profitability of social use of funds. Cost accounting helps the manager in decision making regarding the reduction of the cost of the company and in improving the profitability. Cost accounting system is primarily used for internal managers therefore it does not need to follow the standards of GAAP. Cost accounting is also considered very important for the translation of supply chain into financial values.
(b) DIRECT COST
Direct cost is a costs which can be directly identified with a job, product or service. It may be fixed or variable and may be charged against a product, a sales program, a customer account, or a marketing plan. Besides that, direct costs (such as for labor, material, fuel or power) vary with the rate of output but are uniform for each unit of production, and are usually under the control and responsibility of the department manager. As a general rule, most costs are fixed in the short run and variable in the long run. Examples of direct cost such as direct materials, direct wages or direct labour cost and direct expenses.
• direct materials – raw materials used in a product, bought in parts and assemblies incorporated into the finished product, carriage inwards.
• direct wages – the remuneration paid to production workers for work directly related to production.
• direct expenses – expenses incurred specifically for a particular product e.g. royalties paid per unit for a copyright design, plant or tool hire charges for a particular job.
As a result, direct costs = prime cost = direct material + direct wager + direct expenses.
For example, the cost of rice in a fried rice should be attributed directly to the cost of manufacturing that product. Other costs, such as administrative expenses, are more difficult to assign to a specific product. So that not consider as a
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