Competitive Exams Accountancy Cost accountant

Views of Cost Accountant

As a cost accountant of determining what all concept will you keep in mind in a concern?

the concept of cost is not something definite and care must be taken. A cost accountant is mainly concerned with the following cost concept.

  1. Total cost: It refers to the summation of all items of expenses, weather paid or not, which have been incurred in the production, sale and distribution or a product of in the rendering of a service to a customer. Explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm

  2. Marginal cost: It refers to the prime cost plus variable overhead. This is the amount by which the total cost varies with an increase in the volume of production or other activity by one unit. It is thus the aggregate of direct material, direct labour, direct expenses and variable overhead. The change in total cost that result from a unit increase in output. It is calculated as the increase in total cost divided by the increase in output. A marginal cost is the cost of one extra unit. For example, the recurrent cost of one additional patrol vessel may not be the same as a similar existing vessel, as the existing infrastructure, support staff and maintenance capabilities can be shared.

  3. Standard cost: It is referred to pre-determined cost based on a technical estimate for material, labour and overhead for a selected period of time and for a prescribed set of working condition. This is basically an estimate recorded along with the result achieved and thus provided as a valuable test of measuring the efficiency of a business. The budgeted or planned cost of material, labour, or overheads expected to be paid during a given accounting period. A cost estimate based on standard labour hours, material and overhead costs

  4. Conversion cost: It refers to the sum total of direct labour and factory overhead. In other words, it is the cost of producing partly or fully finished products excluding the cost of direct material but including the gains and losses in weight or volume of direct material arising out of production.

  5. Direct cost: It refers to the aggregate of marginal cost and a portion of fixed cost which can be traced or allocated to products direct costs are, therefore, all traceable costs.

Direct costs are costs which are traceable to the specific activity. Labor and material inputs are the most common direct costs but there can also be other traceable costs such as marketing, selling or administrative type costs. Direct A cost which can be allocated in full to a product, service, customer, and cost centre or business activity. A group of staff dedicated to developing a Customer application is an example. Costs together with indirect costs determine the total cost of providing a good or services.