Shah Cost Assignment Word Pad

Cost
Definition
Something of value, usually an amount of money, given up in
exchange for something else, usually goods or services. All expenses
are costs, but not all costs are expenses. (An expense is the cost of
resources used to produce revenue.) As a verb, cost means to estimate
the amount of money needed to produce a product or perform a
service.
What is Cost Accounting?
Cost accounting is an approach to evaluating the overall costs that are associated with
conducting business. Generally based on
standard accounting practices, cost accounting is one of the tools that managers utilize to
determine what type and how much expenses is involved with maintaining the
current business model. At the same time, the principles of costaccounting can also be
utilized to project changes to these costs in the event that specific changes are
implemented.
What are the classification of costs?

Classification means of analysing costs into logical groups so that they
can be summerized into meaningful information for management use
or for preparing external financial reports.
Management will require informationto make decisions on a variety of

issues,each of which may require different cost summaries.e.g.costs
may be required for aparticular produt,or for a department ,or for the
organisation as a whole.
the criteria used for the classification will depend on the information
being collected.some possible classifications are:
* nature-materials,labour or expenses
* key responsibility or function

* product cost and period costs
* controllable costs ant uncontrollabe costs
* classification according to cost behaviour pattrens
* direct costs and indirect costs.
Labour
labor: a social class comprising those who do manual labor or work for
wages; "there is a shortage of skilled labor in this field"
labor: work hard; "She was digging away at her math homework";
"Lexicographers drudge all day long"
parturiency: concluding state of pregnancy; from the onset of contractions
to the birth of a child; "she was in labor for six hours"
tug: strive and make an effort to reach a goal; "She tugged for years to
make a decent living"; "We have to push a little to make the deadline!";
"She is driving away at her doctoral thesis"
British Labour Party: a political party formed in Great Britain in 1900;
characterized by the promotion of labor's interests and formerly the
socialization of key industries
labor: undergo the efforts of childbirth
labor: productive work (especially physical work done for wages); "his
labor did not require a great deal of skill"
Cost Terms, Concepts, and

Classifications:
Identify and give examples of each of the three basic
manufacturing cost categories.
Distinguish between product costs and period costs and give

examples of each.
Prepare an income statement including calculation of the cost of

goods sold.
Prepare a schedule of cost of goods manufactured.
Understand the difference between variable costs and fixed

costs.
Understand the differences between direct and indirect costs.
Define and give examples of cost classifications used in making

decisions: differential costs, opportunity costs, and sunk costs.
Properly account for labor costs associated with idle time,

overtime, and fringe benefits.
Identify the four types of quality costs associated and explain

how they interact.
Prepare and interpret a quality cost report.
The work of managers focuses on (1) planning, which includes

setting objectives and outlining how to attain these objectives;
and (2) control, which includes the steps to take to ensure that
objectives are realized. To carry out these planning and control
responsibilities, managers need information about the
organization. From an accounting point of view, this information
often relates to the costs of organization.
Manufacturing and Non-manufacturing Costs:

Manufacturing firms are involved in acquiring raw materials producing
finished goods and then administrative, marketing and selling activities. All
these activities require costs to be incurred. These costs are normally
classified by manufacturing companies as manufacturing and non-
manufacturing costs.
Product Costs Versus Period Costs:
In addition to the distinction between manufacturing and non-manufacturing costs,
there are other ways to look at costs. Costs can also be classified as either product
cost or period cost. To understand the difference between product costs and period
costs, we must first refresh our understanding of the matching principle from
financial accounting.
Cost Classifications on Financial Statement:

Merchandising and manufacturing firms, both prepare financial statement reports for
creditors, stockholders, and others to show the financial condition of the firm and the
firm's earnings performance over some specified intervals.
Cost Classifications for Predicting Cost Behavior

(Variable and Fixed cost):
Cost behavior refers to how a cost will react or respond to changes in the level of
business activity. As the level of activity rises and falls, a particular cost may rise and
fall as well--or it may remain constant.
Mixed or Semi variable Cost:

A mixed cost is one that contains both variable and fixed cost elements. Mixed
costis also known as semi variable cost. Examples of mixed costs include
electricity and telephone bills.
Cost classification for Assigning Costs to Cost

Objects (Direct and Indirect Cost)
Costs are assigned to objects for a variety of purposes including pricing, profitability
studies, and control of spending. A cost object is any thing for which cost data are
desired including products, product lines, customers, jobs, and organizational
subunits.
Decision making costs - cost classification for

decision making:
Costs can be classified for decision making. Costs are important feature of many
business decisions. For the purpose of decision making, costs are usually classified as
differential cost, opportunity cost, and sunk cost
Quality Costs:
A product that meets or exceeds its design specifications and is free of defects that
mar its appearance or degrade its performance is said to have high quality of
conformance. Note that if an economy car is free of defects, it can have a quality of
conformance that is just as high as defect-free luxury car. The purchasers of
economy cars cannot expect their cars to be as opulently as luxury cars, but they
can and do expect to be free of defects.
Further Classification of Labor Costs:

Idle time, overtime, and fringe benefits associated with direct labor workers
pose particular problems in accounting for labor costs. Are these costs a part of
the costs of direct labor or are they something else.
What Does Economic Order Quantity - EOQ Mean?

An inventory-related equation that determines the optimum order quantity that a company should
hold in its inventory given a set cost of production, demand rate and other variables. This is done
to minimize variable inventory costs. The full equation is as follows:
where :
S = Setup costs
D = Demand rate
P = Production cost
I = Interest rate (considered an opportunity cost, so the risk-free rate can be used)
Investopedia explains Economic Order Quantity - EOQ

The EOQ formula can be modified to determine production levels or order interval lengths, and is
used by large corporations around the world, especially those with large supply chains and high
variable costs per unit of production.
Despite the equation's relative simplicity by today's standards, it is still a core algorithm in
the software packages that are sold to the largest companies in the world.
THE END

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Cost

What is Cost Accounting?

What are the classification of costs?

Management will require informationto make decisions on a variety of

* key responsibility or function

* controllable costs ant uncontrollabe costs

* classification according to cost behaviour pattrens

* direct costs and indirect costs.

Cost Terms, Concepts, and

Distinguish between product costs and period costs and give

Prepare an income statement including calculation of the cost of

Understand the difference between variable costs and fixed

Understand the differences between direct and indirect costs.

Define and give examples of cost classifications used in making

Properly account for labor costs associated with idle time,

Identify the four types of quality costs associated and explain

Prepare and interpret a quality cost report.

The work of managers focuses on (1) planning, which includes

Manufacturing and Non-manufacturing Costs:

Cost Classifications on Financial Statement:

Cost Classifications for Predicting Cost Behavior

Mixed or Semi variable Cost:

Cost classification for Assigning Costs to Cost

Decision making costs - cost classification for

Further Classification of Labor Costs:

What Does Economic Order Quantity - EOQ Mean?

Investopedia explains Economic Order Quantity - EOQ

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