Fundamentals of Cost Accounting
COSTACCOUNTING TERMS 1. Define cost object and give three examples
Cost object is defined as “Anything for which a separate measurement of cost is desired”. The term cost object and cost objective is synonymous. Cost object may refer to a process, a cost centre, and cost units.
Cost unit is a quantitative unit of product or service in relation to which cost are ascertained.
Cost centre is a location, function or item of equipment in respect of which cost are ascertained.
2. Define cost accumulation and cost assignment
Cost accumulation refers to the process of collecting cost data through an accounting system. Usually costs are collected under general ledger accounting headings, which follow natural classifications, such as materials, labour, power, electricity, fuel etc.
Cost assignment is a general term used to cover 1. Tracing of costs to cost objects, 2. Apportionment of costs to cost objects, and 3. Application of costs to cost objects often termed as cost absorption.
3. Define Cost apportionment and Cost absorption.
Cost apportionment is “The allotment to two or more cost centres of proportions of the common items of cost on the estimated basis of benefit received.”
Cost Absorption is a method of assigning cost to cost units. Cost which cannot be allocated to cost units are assigned to them on some equitable basis. Normally it shall be assigned at a predetermined basis like machine hour rate, labour cost etc.
4. How the cost is classified?
The costs are classified according to the basis of relationship to the production unit as direct cost and indirect cost. The cost incurred direct in manufacture of a product in respect of each and every unit is called direct costs. These include direct material cost; direct labour cost and direct chargeable expenses. The expenses that are normally incurred to a production centres irrespective of production are
Cost object is defined as “Anything for which a separate measurement of cost is desired”. The term cost object and cost objective is synonymous. Cost object may refer to a process, a cost centre, and cost units.
Cost unit is a quantitative unit of product or service in relation to which cost are ascertained.
Cost centre is a location, function or item of equipment in respect of which cost are ascertained.
2. Define cost accumulation and cost assignment
Cost accumulation refers to the process of collecting cost data through an accounting system. Usually costs are collected under general ledger accounting headings, which follow natural classifications, such as materials, labour, power, electricity, fuel etc.
Cost assignment is a general term used to cover 1. Tracing of costs to cost objects, 2. Apportionment of costs to cost objects, and 3. Application of costs to cost objects often termed as cost absorption.
3. Define Cost apportionment and Cost absorption.
Cost apportionment is “The allotment to two or more cost centres of proportions of the common items of cost on the estimated basis of benefit received.”
Cost Absorption is a method of assigning cost to cost units. Cost which cannot be allocated to cost units are assigned to them on some equitable basis. Normally it shall be assigned at a predetermined basis like machine hour rate, labour cost etc.
4. How the cost is classified?
The costs are classified according to the basis of relationship to the production unit as direct cost and indirect cost. The cost incurred direct in manufacture of a product in respect of each and every unit is called direct costs. These include direct material cost; direct labour cost and direct chargeable expenses. The expenses that are normally incurred to a production centres irrespective of production are