Steps in Installation of a Costing System
Steps in Installation of a Costing System
The costing system of an organization should be carefully planned in order to achieve its objectives. The important steps for the installation of a costing system are discussed below:
1. Determination of objectives: The first step is to clearly lay down the objectives of the costing system. If the objective is only to ascertain the cost, a simple system will be sufficient. However, if the objective is to get information for decision ma…
An Ideal Costing System (Characteristics of a Good Costing System)
An Ideal Costing System (Characteristics of a Good Costing System)
An ideal system of cost accounting must possess some characteristics which bring all the advantages, discussed above; to the business, in order to be ideal and objective. The main characteristics are:
1. Simplicity: It must be simple, flexible and adaptable to the changing conditions. And it must be easily understandable to the personnel. The information provided must be in the proper order, in right time and t…
Techniques and types of costing
Techniques or Types of Costing
Techniques of Costing: The types and techniques of costing are as follows:
1. Historical Costing: ‘The ascertainment of costs after they have been incurred’ is called Historical costing. Such costs are, therefore, ‘postmortem’ costs as under this method all the expenses incurred on the production are first incurred and them the costs are ascertained.
2. Standard Costing: ‘The preparation and use of standard costs, their comparison with actual cos…
Methods of costing
Methods of Costing
The methods of costing are as follows: 1.Job Costing: The job costing methods are applicable where the unit of manufacture is one and complete in itself. They include printers, job foundries, tool manufactures, and contractors, etc. the following methods are included in Job Costing:
2. Contract Costing: This method if applied in undertakings erecting buildings or carrying out constructional works, e.g., House buildings, ship building, Civil Engineering contr…
Difference between perpetual and periodic inventory system
Difference between Perpetual and Periodic Inventory System
In Perpetual Inventory System, we regularly update the value of inventory when inventory are sold, while in periodic inventory system, we don’t adjust the value of inventory when inventory are sold. Instead, we adjust the value at the end of operating cycle or accounting period of the business of Entrepreneur.
Perpetual Inventory System is based on Computerized Accounting System which is integrated in larger-scale busi…
Idle Time : Cost Account
Idle Time - Meaning, Types and Treatment
Meaning: Idle time refers to the labour time paid for but not utilized on production. It, in fact, represents the time for which wages are paid, but during which no output is given out by the workers. This is the period during which workers remain idle.
Types of Idle Time:The followings are the types of idle time:
1. Normal idle time is inherent in any job situation and thus it cannot be eliminated or reduced. For example: time gap betwe…
Methods of wage payment : Labour Turnover
Methods of Wages Payment
The methods of remuneration can be classified into: 1. Time Rate System 2. Pieced Rate System 3. Incentive Schemes
1. Time Rate System: In this system, a worker is paid on the basis of attendance for the day or according to the hours of the day, regardless of the output. This system is also known as time work, day work, day age rate or day rate. The wage rate of the day worker may be fixed on hourly, daily, weekly, fortnightly, or monthly basis depend…
Features of an Ideal Incentive Scheme
Features of an Ideal Incentive Scheme or Plan
Features of an Ideal Incentive Scheme An ideal incentive plan must possess the following features: 1. Simplicity: The plan should be simple to understand and operate. Who should be able to calculate their wages without any difficulty?
2. Acceptability: It should be acceptable to workers as well as the employer.
3. Flexibility: The incentive plan should be flexible to introduce nice changes.
4. Quality: The plan should ensure the q…
Overtime Premium
Overtime Premium - Meaning, Treatment and Control
Overtime Premium: Overtime is the amount of wages paid for working beyond normal working hours as specified by Factories Act or by a mutual agreement between the workers union and the management. There is a practice is to pay for overtime work at higher rates. Hence, payment of overtime consists of two elements, the normal wages e.g., the usual amount, and the extra payment i.e., the premium. This amount of extra payment paid …
Short Notes on Labour Turnover
Labour Turnover - Meaning, Methods, Causes and Cost
Meaning: Labour turnover may be defined as change in labour force i.e., percentage change in the labour force during a specific period. High labour turnover indicates that labour is not stabilised and there are frequent changes by way of workers leaving the organization. High labour turnover is to be avoided. At the same time very low labour turnover indicates inefficient workers are being retained in the organization.
Measur…
Job Evaluation
Job Evaluation - Meaning, Objectives and Methods
It is necessary for the management of any organization to establish proper wage and salary structure for various jobs. For doing this in a scientific manner, it is necessary to determine the relative value of jobs and hence a job evaluation is done. Job evaluation is a technique of analysis and assessment of jobs to determine their relative value within the firm. It aims at providing a rational and equitable basis for different…
Time and Motion Study
Time and Motion Study
The study of time and motion is essential for designing an incentive system. Time study determines the time to be spent on the job. Standard time is the time that should be taken for completing a particular job under standard or normal working conditions. For fixation of standard time, motion study is necessary. Thus, the motion study precedes the time study. Motion study means dividing the job into fundamental elements or basic operations of the job or …
Types of Cost : Meaning and usefulness of classification
Types ofCost
Meaning: Cost related to a cost center or cost unit may be divided into two i.e. Direct and Indirect cost. The Indirect cost is the overhead cost and is the total of indirect material cost, indirect labour cost, indirect expenses. These indirect costs are called as ‘Overhead’ costs. According to CIMA, overhead costs are defined as, ‘ the total cost of indirect materials, indirect labor and indirect expenses.’ Thus all indirect costs like indirect materials, indir…
Codification of Overheads
Codification of Overheads - Meaning, Essential, Advantages and Methods
Codification of Overheads Codification is a process of representing each item by a number, the digits of which indicate the group, the subgroup, the type and the dimension of the item. It is always advisable to codify the overhead expenses. Codification helps in easy identification of different items of overheads. There are numerous items of overheads and a code number to each one will facilitate identifi…
Absorption of Overheads
Absorption of Overheads
Absorption of Overheads: The most important step in the overhead accounting is ‘Absorption’ of overheads. CIMA defines absorption as, ‘the process of absorbing all overhead costs allocated or apportioned over a particular cost center or production department by the units produced.’ In simple words, absorption means charging equitable share of overhead expenses to the products. As the overhead expenses are indirect expenses, the absorption is to be made…
Allocation and Apportionment of Overheads
Allocation and Apportionment of Overheads
After classification of overheads all the items of overheads are collected properly under suitable account heading. The next step is allocation and apportionment of overheads. This is also known as departmentalisation or primary distribution of overheads.
Before understanding allocation and apportionment or departmentalisation of overheads, it is essential to study the different types of departments or cost centers. In a manufacturing …
Process Costing
Process Costing
Process Costing: Process costing is a method of operation costing which is used to ascertain the cost of production at each process, operation or stage of manufacture, where processes are carried in having one or more of the following features:i. Where the product of one process becomes the material of another process or operationii. Where there is simultaneous production at one or more process of different products, with or without by product,iii. Where, duri…
Reconciliation of Cost and Financial Accounts
Reconciliation of Cost and Financial Accounts
When cost accounts and financial accounts are maintained in two different sets of books, there will be prepared two profit and loss accounts - one for costing books and the other for financial books. The profit or loss shown by costing books may not agree with that shown by financial books. Such a system is termed as, ‘Non-Integral System’ whereas under the integral system of accounting, there are no separate cost and financial ac…
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