accounting for dission making respose

paper 1 nais

Whether we manufacture a product or offer a service, companies require to realize the concepts of accounting and how to handle their money. It is critical to understand the costs of that product or service to plan what to expect for sales, growth, and maturation for the clientele. There are many types of cost, and are classified different, depending of the needs of management.

Cost accounting is the internal process of collecting, organizing, and analyzing financial data. This data contains cost information on products or services, including pricing, preparing profitability studies, and controlling spending. Costs are classified as direct or indirect. A direct cost is the operating costs for specific department or project. It is calculated to ensure projects are profitable and departments are running efficiently, if projects should continue, and analyzing if the cost of outsources projects are more effective than in-house. An indirect cost is the expenses that need to be added that are not associated to a specific product or project within a company. These costs may also be called administrative expenses or overhead costs (Noreen, Brewer & Garrison, 2017).

Noreen, Brewer & Garrison (2017) mention that is necessary to understand the classification of costs behavior, and how react to changes in the level of activity cost. For planning purpose, managers can categorize cost as:

• Variable
• Fixed
• Mixed

Variable cost is expenses that change with the quantity of productivity. It is directly attach to the activities of producing volume. This effect can be related to materials, labor, and sales commissions. A particular cost may rise when these activities increase and falls when activities decrease. Variable costsare those which do not remain constant, specifically when production activities fluctuate. The formula to calculate variable cost is:

Total Variable Cost = Total Quantity of Output * Variable Cost per Unit of Output

Fixed cost is those costs that do not change based on production levels of activity that can be material goods like buildings and equipment.

Mixed costis one that has both a variable cost and a fixed cost. A variable cost changes with production. The more production, the higher the variable cost. Some examples of a variable cost include commission and energy usage. A fixed cost on the other hand, remains unchanged despite production. An example of a fixed cost includes base salaries and basic monthly cell phone packages. Both have to be paid regardless of production, or productivity. The formula to calculate mixed cost is:

Y = a + bX Y= total mixed cost

a= total fixed cost

b= total variable cost per unit of activity

X= the level of activity

A very common example is cell phones. We need to pay a basic monthly fee for the plan we choose. The basic fee for our package is a fixed cost. But if we use more data than our plan, we need to pay extra fee for that data. The extra costs are variable costs because the more we use our phone, the more costs we obtain.

According to Küpper, H. (2009), the two main purposes of cost accounting are to supply managers with the data needed for decision making (decision facilitation) or for the reinforcement of their decision within the firm (decision influence). Shank & Govindarajan (1992) deliberate that competitive advantage in the marketplace eventually arises from providing better customer value for equivalent cost or equivalent customer value for a lower cost.

To understand cost classifications, we can look at product cost and period costs. Product costs are the purchasing or production of products and go into inventoried. Such costs include direct labor and materials, as well as manufacturing overhead. These costs are not documented, and the product that created the costs will be pending until is sold. To recognize product costs, we need to look at some common classifications:

1. Direct materials are those material costs that are tied to the product specifically. For example, the cost of fabric when making clothing.
2. Direct labor is the time that employees spend on making that a product. An example of this might be the amount of time a vet spends on doctoring an animal.
3. Manufacturing overhead are those costs that do not fit within the category of direct labor or direct materials. For example, the cost of power to run the lights in the factor where a product is made.
4. Period costs, are all of the costs that are not related to product costs and are not part of manufacturing. Some examples of period costs are marketing and administration, or office costs like rent and advertising.

As general expenses, managers classify costs for assigning cost to cost objects such as products or departments, cost are classified as direct or indirect. For external reporting purposes, costs are classified as product cost or period cost. To predicting how costs will react to changes in activity, costs are strictly proportional to activity (variable, fixed, and mixed).

Reference

Küpper, H. (2009). Investment-Based Cost Accounting as a Fundamental Basis of Decision-Oriented Management Accounting. Abacus, 45(2), 249-274. doi:10.1111/j.1467-6281.2009.00284.x

Noreen, E., Brewer, P.C., & Garrison, R.H. (2017). Managerial Accounting: An Overview. In Managerial Accounting for Managers (4th ed., pp. 1-22). New York, NY: McGraw-Hill.

Shank, J. K., & Govindarajan, V. (1992). Strategic Cost Management: The Value Chain Perspective. Journal Of Management Accounting Research, 4179-197.

paper 2 kat

After retrieving information on the different types of variables that are commonly used in today’s business arena, I quickly related these three to my personal experiences. They are Variables, fixed and mixed. These are used more than most for many of us.

Y =total mixed cost

A = total fixed cost

B = total variable cost

X = level of activity

These are used for mostly planning purposes for managers in the world of accounting and business.

Variables cost – refers to a corporate expense that varies with production output. Variable cost is those cost that vary depending on a company’s production volume, that rises as production increases and fall as production decreases.

Examples are your raw materials that consist of packing and labor which directly involved in a company’s manufacturing process. Variable cost frequently factor into profit projections and the calculations of a breaking even type for a business or main project or a company with many variable costs that may exhibit more consistent per unit cost and have more predictable per unit.

Fixed cost – refer to cost that doesn’t change with an increase or decrease in the amount of goods or services produced. The fixed cost are expenses that must be paid by a company, independent of any business activity. It is one of the two components of the total cost of a good or service, along with a variable cost.

Example of a fixed cost: Rent, insurance premiums, loan payment. Fixed cost can create economics of scale which are reduced in per unit cost. Typically, fixed cost differs widely among incentives and capital incentives with businesses that are long term fixed cost.

Mixed cost – refer to expenses that have characteristics of both fixed and variable cost. In other words, it’s a cost that changes with the volume. Of production like a variable cost and it can’t be eliminated like a fixed cost.

Examples of mixed cost: Salaries, utilities, x-ray services. These mixed costs are both fixed and variable cost that are better known as semi-variable cost.

Product cost -refers to manufacturing companies that share cost that consist of direct materials, direct labor, and manufacturing overhead. Product cost was innately treated as inventory and didn’t appear on income statements until the product they incur are sold.

Example of product cost: Raw materials labor, factory and depreciation, fuel and packaging cost.

Period cost – refers to all cost other than product. These are not incurred on the manufacturer process and therefore these cannot be assigned to cost goods manufactured. Period cost are expense in the period which they incur.

Examples of period cost are advertising sales commissions, office supplies, office depreciation, legal and research and development cost.

Direct materials – refer to as raw materials that become part of the finished product, for example bricks shingles bath tubs are all considered direct materials when building a home. Paper is also a direct material when making grocery bags.

Direct labor cost – refers to employees and temporary help who work directly on manufacturers products. They also refer to wages, fringe benefits, temp workers. It’s also defined in some industries as inventorial cost which is simply the cost of direct materials and manufacturing overhead, such as prime cost which is direct cost and conversion cost- manufacturing overhead cost.

Overhead cost – refers to expenses to an ongoing expense of a business, also known as operating expense. Overhead cost is not associated with products or services being offered, but do not directly generate profits. An example of overhead cost or ongoing expenses used to run with business, such as labor, insure, repair, office supplies, taxes, utilities.

Overhead cost, direct cost, fixed cost is all controllable based on what they ae being used for in a business venture. They can help management because of the need of the company to use these as to how they impact a company, whether it is a profit or a loss.

References

J. Henson, (2017). Business Overview/ Bright Hub. Pg. 21- 25 Bright Hub.com

Noreen, Brewer & Garrison, R. H. (2017). Managerial an Overview. In Managerial Accounting for Managers ( 4^th ed, pp. 1-22). N.Y. New York McGraw Hill.

paper three hars

Variable costs are the expenses that are directly proportional to the total amount of output. In this case, when the volume of production is doubled, the variable costs would also double and vice versa. For example, when the amount of sand used in constructing a mansion is increased twice, the expected cost to be incurred will be automatically doubled compared to the previous value. Fixed costs are the expenses that a firm incurs irrespective of the fluctuating volumes of output. They remain constant throughout the designated period. These include electricity bills, salaries and rent expenses. Mixed costs consist of both fixed and variable costs (Horngren, 2009). Fixed costs remain constant over time while variable costs fluctuate as the volume of output changes. A good example of mixed value is a water company which, for instance, charges a fixed outstanding price of say $50 for using up to 200 gallons of water. The variable cost is the extra $2 charged for each gallon which exceeds the 200 gallons.

Product costs are the expenses incurred when a commodity is manufactured. Such costs, for instance, exist in mansion construction and include, expenses for buying nails, paints among others. Period costs are not associated with fixed expenses but act as time-bound costs between the manufacturing to selling of the commodity. It includes advertisement costs, security incurred after manufacture, and selling expense (Hansen, et al., 2007).

In the manufacturing of a product, the materials and items that are consumed during the preparation stage are direct materials. They can directly be identified with the product. Examples include shingles in a house. Workers are part of the direct costs. Manufacturing overheads are all the other expenses of production which exclude direct material and direct labor costs. They are referred to as fixed costs because they remain constant over time.

Variable costs can be controlled while fixed costs cannot. For instance, three labor units can be reduced to 2 and still attain the same level of output, unlike fixed costs like rent which is incurred regardless of output. This helps greatly in minimizing expenses by management to eliminate loss and to maximize profit. The management would ensure that the controllable costs are kept at reasonable levels depending on the targeted profit margin.

References

• Hansen, D., Mowen, M., & Guan, L. (2007).Cost management: accounting and control. Cengage Learning.
• Horngren, C. T. (2009).Cost accounting: A managerial emphasis, 13/e. Pearson Education India.
• Accounting-Simplified: Free Financial Accounting Study Resources”. Accounting-simplified.com. N.p., 2017. Web. 16 Mar. 2017.

Answer Preview

The notion of categorizing expenses as direct and indirect costs is critical since it enables management to comprehend which types of costs usually affect their businesses a lot. It has the direct costs being those expenses which essential for running the business in a particular division or assignment. They are measured to make sure that assignments are effective and divisions are…

(867 Words)