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Costing methods and systems

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  1. Introduction
  2. Objectives of costing
  3. Elements of cost
  4. Classification of overheads
  5. Methods of costing
  6. Sytem of costing
  7. Standard costing
    1. Advantages of standard costing
    2. Analysis of variances
  8. Process costing
  9. Classification of costs

Cost: Cost is the expenditure incurred on production of goods and services, either to be sold as finished products or used in the production of other goods and services.

Costing: It is the technique and process of ascertaining and calculating costs. It is the formal mechanism by means of which costs of product or services are controlled and ascertained.

Cost unit: A cost unit is a unit of quantity of product, service or time in relation to which cost may be ascertained, in other words the quantity upon which cost can be conveniently allocated.

Cost Center: Refers to any location, person or item for which costs may be ascertained separately and used for cost control. A cost center can broadly be divided as:

Production cost center

Service cost center

Production cost center: are those, which are actually engaged in making the product. Service cost centers: do not make the product but are essential aids to the productive centers. Like maintenance service, utilities etc.

[...] Though several different products are manufactured, the units in each product group will have common cost component or characteristics. Since unit costs are assumed to be substantially uniform, in Process costing costs are accumulated by department or "cost centers" and the cost of given department is divided by the total production of the department to obtain department unit cost. General Principals: 1. The production activities of the plant are classified into Production and Service cost centers Cost centers classify all direct or indirect cost of particular period Production in terms of physical [...]

[...] Overheads: Expenses as appearing under the head "Other expenses and provisions" in the financial accounts and which are not identifiable to any specific cost centre as well as expenses of certain departments for which separate cost statements are not prepared shall be treated as 'Overhead' and collected under Overhead cost centre. Classification of Overheads: According to nature: 1. Indirect material Indirect labor Indirect expenses. According to normality: 1. Normal overheads Abnormal overheads. According to controllability: 1. Controllable overheads Uncontrollable overheads. According to variability: 1. Fixed overheads Variable overheads Semi-variable overheads. METHODS OF COSTING 1. [...]

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