Cost Accounting

Incentive Plans

What are Incentive Plans? – definition Incentive Plans are the techniques in which an organization keeps its employees motivated to perform their specific tasks with more effort and efficiency and pay several incentives to complete those tasks. Advantages of Incentives Generally, the following advantages result from the introduction of incentive plans in a factory: Rate …

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Reconciliation of Cost and Financial Accounts

Introduction of Reconciliation of Cost and Financial Accounts Cost accounts are maintained independent of financial accounts. These two accounts have different aims to fulfill. In the financial account, expenses are recorded in a subjective form, that is, according to their nature in a strict sense of the term. On the other hand, the cost accounts …

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Batch Costing

What is Batch Costing? – Definition Batch costing is nothing but a modified form of job costing in which cost is calculated of each batch of production. This method of costing is applicable in those manufacturing unit, where articles are manufactured in definite batches. This method is also known as ‘Lot Costing’ as products are …

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Output Costing

Output Costing – Definition Output costing is an analysis of the different elements of expenditure so as to find out the factory cost, office cost and total cost per unit. The per-unit cost is arrived at by dividing the total expenditure by the quantity produced. Output Costing – Explanation This costing system is employed in …

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Essential Details You Need To Know About Cost Accounting

Cost accounting is a method of accounting that helps to calculate the cost of different functions of a company, such as production, fixed price along with depreciation of capital equipment. At first, it measures and records these costs individually and then compares the input outcome with the actual result to assist the management of a …

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Cost Plus Contract

What is Cost Plus Contract? – Definition Sometimes contractors may accept a contract on the condition that the contractee would bear all costs incurred in executing a contract plus a fixed rate or percentage of profit calculated with reference to the total cost. Such contract is known as Cost Plus Contract and is generally adopted …

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Contract Costing

What is Contract Costing? – Definition Contract costing is the method of costing which is applied in a business where separate contracts of non-repetitive nature are undertaken. According to Sharie, “Contract or terminal cost accounts are applicable to a concern which makes specific contracts and requires to know the cost of each.” A contract is …

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Contract Account

What is Contract Account? – Definition When a contract has been accepted by the contractor, a separate account is opened for each contract in order to bring together all costs relating to a particular contract, and a serial number is given to each contract, which is called contract account. Explanation of Contract Account All expenses incurred …

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Cost Price Method

Explanation of Cost Price Method Under cost price method, materials issued to production, are charged out on the basis of actual cost i.e., the cost at which these have been purchased. As we already know, the actual cost of materials consists of purchase price or invoice price (less trade discount and quantity discount), import duty, …

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Material Abstract

Definition and Meaning In order to ascertain the cost of materials used on a particular work-order or job, an analysis of Material Requisitions, Material Returned Notes and Material Transfer Notes is made on sheets specially meant for this purpose which are known as Materials Abstract or Materials Issue Analysis sheet. Specimen/Format of Material Abstract The …

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Maximum Stock Level

Maximum Stock Level is the upper limit of stock above which the stock should not be allowed to exceed under normal circumstances without the prior sanction of the management. The main object for fixing up the maximum stock level is to avoid undue investment of capital leading to loss of interest, obsolescence of materials and …

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Methods and Principles of Codification of Materials

Methods of Codification Some of the common methods of codification of materials may be enumerated as follows: 1. Alphabetical Codification of Materials As the name indicates, this method involves the use of letters of alphabets as codes to facilitate easy and quick identification of materials. For example: Symbole Description A Raw Materials B Tools and …

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Stores management in manufacturing concerns

In manufacturing concerns, stores may be managed as: (a) Centralized Stores, (b) Decentralized Stores, and (c) Centralized Stores with sub-stores. Centralized Stores Management Centralized storing refers to the setting up of a single store-house for the whole organization. It caters to the needs of all the departments working in the organization. Such stores are advocated …

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Store Keeping

After materials purchased have been received and checked, the next step in the process of material control is the storing of materials or store keeping. ‘Store keeping’ refers to the safe custody of all items of raw materials, supplies, finished parts, purchased parts etc., in the store-room for which the store-keeper acts as a trustee. …

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Receiving and Inspection of the materials

Receiving of Materials In small and medium-sized manufacturing concerns, functions of receipt and inspection of materials are to be performed by the stores department or the store-keeper. But in case of large manufacturing concerns, generally, a separate Receiving Department is set up. The Receiving Department has the following functions to perform: (i) To receive, unload …

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Material Cost

Definition Material is the most important element of cost. In most of the manufacturing concerns, 50% to 70% of the total cost of a product is represented by the cost of the material. The material cost has been defined by the Institute of Cost and Management Accountants, U.K., as “the cost of commodities supplied to …

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Classification of Cost

Cost accounting involves collecting, classifying, recording and appropriate allocation of expenditure for determining the costs of products or services. After costs have been collected, these are properly classified for their identification with cost centers or cost units. Costs have different features or characteristics. Costs are grouped or classified according to their common characteristics. The process …

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Essential Factors to be Considered for Designing a Cost Accounting System

For ensuring the efficient and successful operation of the cost accounting system, certain factors are to be given due consideration while designing such a system. These factors may be given as follows: (i) Technical Details of the Business: All the technical details of the business concern, its organizational structure, manufacturing procedure and process, selling and …

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Advantages of Cost Accounting

Cost accounting system renders invaluable services to the manufacturers, management, employees, investors, consumers and Government. These services or advantages may be summarized as follows: (A) Advantages to manufacturers and management The main advantages of a sound cost accounting system to the manufacturers and management are: 1. Ascertainment of cost: The principal object of cost accounting …

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Similarities and Differences Between Cost Accounts and Financial Accounts

Similarities Cost accounts and Financial accounts which are kept quite separate in a business concern, are similar in certain respects while in some other respects these differ from each other. The various  similarities between cost accounts and financial accounts may be given as follows: (i) Both cost accounts and financial accounts are maintained on the …

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