Companies move to Activity -Based Costing to better understand the true costs of goods and services.
What are the types of costs in cost accounting? Murphy Updated April 24, — 1: Cost accounting is an accounting process that measures and analyzes the costs associated with products, production, and projects, so that correct amounts are reported on a company's financial statements.
Below are some of the types of costs used in cost accounting: It can be easily traced to a product, department or project. For example, Ford Motor Company F manufactures cars and trucks. The direct costs associated with the car are the wages paid to the worker and the parts used to build the car.
An indirect cost cannot be easily traced to a product, department, activity or project.
For example, suppose a company leases a machine for production for two years. The lease payment is considered a fixed cost as it remains unchanged.
This type of cost varies depending on the number of products a company produces. A variable cost increases as the production volume increases, and it falls as the production volume decreases. For example, a toy manufacturer must package its toys before shipping products out to stores.
This is considered a type of variable cost because, as the manufacturer produces more toys, its packaging costs increase. However, if the toy manufacturer's production level is decreasing, the variable cost associated with the packaging decreases.
In other words, an opportunity cost represents an alternative given up when a decision is made.
This cost is, therefore, most relevant for two mutually exclusive events. For example, deciding on how supplies are ordered or the payroll for a manufacturing company would be controllable, but not necessarily avoidable.Beyond the fact that many people bake because they gain satisfaction and even joy out of the process, baking your own bread may be healthier than buying at the store.
Fewer additives and total control of the quality of ingredients are important considerations.
Which costing methods (job order costing, process costing and activity costing) are best suited to the following businesses and why: Old Home Bakery, Inc (a bakery that produces to order): It will be able to use job order costing because it is designed for businesses which work with orders rather than mass production.
Standard Costing •In a standard costing system, costs are entered into the Materials, Work in Process, and Finished Goods Inventory accounts and the Cost of Goods Sold account at standard cost; actual costs are recorded separately.
Cost and Cost Classifications Cost is a sacrifice of resources to obtain a benefit or any other resource. For example in production of a car, we sacrifice material, electricity, the value of machine's life (depreciation), and labor wages etc. Identifying which costing methods is the optimal one for your business can be challenging, and it depends on whether you have multiple locations, how much variation there is in your input costs and whether you’re easily able to average the costs of your products together.
Would a job order cost system or a process order cost system work for Super Bakery. Why or why not? Super Bakery, Inc., created in by former Pittsburgh Steelers' running back Franco Harris, is a nationwide supplier of mineral-, vitamin-, and protein-enriched doughnuts and other baked goods to the institutional food market, primarily school systems.