Job Costing
METHODS OF COST ACCOUNTING
INTRODUCTION
The Meaning of Cost
Cost is a measure of the sacrifice or forgoing of a scarce resource to achieve a specific objective. An organization sacrifices scarce resources, i.e. the purchase cost, in order to obtain other resources. A cost is usually measured in terms of money paid to acquire goods or services. One can observe that the term cost is rarely used without an adjective in front of it. The term ‘Cost’ has multiple meanings and different types of costs are used in different situations. Therefore a preceding term must be added to clarify the assumptions that underlie a cost measurement. Examples include variable cost, average cost, total cost, fixed cost, opportunity cost and sunk cost. A few types of costs are as given below: * Total Costs and Average Costs: Total cost includes the cost of all resources acquired or used by an organization during a specified time period. In certain decisions, calculating the unit cost is imperative. A unit cost, also called the average cost, is computed by dividing the total cost of the product by the related number of units. Units may be expressed in different ways. Unit costs are regularly used in financial reports. However, in organizations with different products and services, unit cost usually is not a meaningful number for making decisions about the uses of capacity. For example, the company may be profitable overall (i.e. unit selling price exceeds unit cost) it still may be carrying some very unprofitable products (e.g. cost of resources used exceeds sales revenues). * Manufacturing Costs: Manufacturing costs are the costs associated with the production of goods. They include three cost categories: direct material, direct labor and manufacturing overhead.
* Non-Manufacturing Costs: These costs can be defined as all the costs that are not associated with the production of goods. These costs typically include selling as well as general and administrative
INTRODUCTION
The Meaning of Cost
Cost is a measure of the sacrifice or forgoing of a scarce resource to achieve a specific objective. An organization sacrifices scarce resources, i.e. the purchase cost, in order to obtain other resources. A cost is usually measured in terms of money paid to acquire goods or services. One can observe that the term cost is rarely used without an adjective in front of it. The term ‘Cost’ has multiple meanings and different types of costs are used in different situations. Therefore a preceding term must be added to clarify the assumptions that underlie a cost measurement. Examples include variable cost, average cost, total cost, fixed cost, opportunity cost and sunk cost. A few types of costs are as given below: * Total Costs and Average Costs: Total cost includes the cost of all resources acquired or used by an organization during a specified time period. In certain decisions, calculating the unit cost is imperative. A unit cost, also called the average cost, is computed by dividing the total cost of the product by the related number of units. Units may be expressed in different ways. Unit costs are regularly used in financial reports. However, in organizations with different products and services, unit cost usually is not a meaningful number for making decisions about the uses of capacity. For example, the company may be profitable overall (i.e. unit selling price exceeds unit cost) it still may be carrying some very unprofitable products (e.g. cost of resources used exceeds sales revenues). * Manufacturing Costs: Manufacturing costs are the costs associated with the production of goods. They include three cost categories: direct material, direct labor and manufacturing overhead.
* Non-Manufacturing Costs: These costs can be defined as all the costs that are not associated with the production of goods. These costs typically include selling as well as general and administrative