Cost Accounting, 3rd edition - Md. Items to be excluded from the costs. It is presented in the most conventional way for the purpose of financial and tax reporting. Marginal social cost is similar to private cost in that it includes the cost of private enterprise but also any other cost or offsetting benefit to society to parties having no direct association with purchase or sale of the product. Where there is decision with no changes in fixed cost, normal marginal costing principles apply. But, under marginal costing, variable cost alone are taken into consideration for valuation. Methods of accounting of overtime pay, idle time, bonus and other miscellaneous allowances paid to the workers.
This project work, on completion, is meant to help organizations that adopt or use marginal costing techniques as solutions on how to make an effective and efficient decisions will be offered to them. This is due to inclusion of fixed costs. The same costing principles are applied by all member units for ascertaining cost. A producer may, for example, the environment, and others may bear those costs. The managerial decision-making is based on this figure. It will help a firm look at their cost comprehensively and they will be able to strategize around their cost effectively. As a source for additional understanding of the subject 2.
This project work, on completion, is meant to help organizations that adopt or use marginal costing techniques as solutions on how to make an effective and efficient decisions will be offered to them. The essence of this decision centers around the question of whether a firm should manufacture a part, a sub — assembly or even a product as opposed to buying same, that is, if the company is deciding whether to meet its own needs internally other than to buy externally. Need for Uniform Costing : The need for uniform costing arises from the fact that different units use different cost procedures and principles for costing. The concept of contribution margin is particularly useful in the planning of business because it gives an insight into the potential profits that a business can generate. Some concerns use heavy machinery for carrying out their operations while others use labour intensive machines. . As a result, the socially optimal production level would be lower than that observed.
Externalities are costs or benefits that are not borne by the parties to the economic. It shows the relative contributions to profit that are made by each of a number of products and show where the sales effort should be contracted. Improving Performance: Several common processes or operations can be standardised and made applicable to several undertakings. The marginal costing technique can be combined with standard costing. Consequently, when the volume of output differs from the volume of sales, the net income reported under marginal costing will differ from the net profit reported under absorption costing. The most fundamental difference is in the treatment of fixed overhead production cost. The two techniques are expected to be appropriately used in short term tactical managerial decision making exercise that would amount to efficient management of resources for the production of income, profit and wealth.
Semi-variable costs are partly fixed and partly variable. Equally, to benefit from the study by students and researchers who will also serve as a source of information for further research. In other words, firms refuse to sell if the marginal cost is greater than the market price. Some accountants are not fully conversant with the marginal techniques themselves. It also enables the member units to use this system as yard-stick of their achievements and performances by comparing costs and profitability of such units.
However, it should be clearly understood that it does not supplant financial or cost accounting systems; rather it supplements them in order to serve the diverse requirements of modern management. The above definitions clearly indicate that management accounting is concerned with accounting information, which is useful to management. The techniques of costing, therefore, is never static nor are its rules fixed for all time. In small concerns all the problems are handled by one person and there is no need of elaborate system of costing but- in big business there is need of division of work and responsibility and the authority is given to the different levels of managers to complete their work efficiently. Its goal is to advise the on how to optimize business practices and processes based on cost efficiency and capability. Control of Cost: It facilitates in arriving at the cost of production for the industry as a whole which is acceptable to several undertakings in the industry.
The government can formulate tax rates based on the useful information supplied by it regulating profitability of the industry. Moreover, the individual requirements of each concern differ from those of the other concerns. Marginal cost remains the same per unit of output irrespective of the level of activity. Managerial Uses of Marginal Costing: The following may be listed as specific managerial uses: a Cost Ascertainment: Marginal costing technique facilitates not only the recording of costs but their reporting also. Lop-sided Emphasis: Marginal costing has a tendency to attach more importance to the selling function which has the effect of relegating the production of function to a comparatively unimportant position. For this purpose the data is presented in a comparative form. Production of are a textbook example of production that create positive externalities.
Reports and statements for planning and control. It facilitates the calculation of various important factors, viz. In the short run, increasing production requires using more of the variable input — conventionally assumed to be labor. Predetermined costs are computed in advance on basis of factors affecting cost elements. Features of Uniform Costing 3. Hence, the main function of management accounting is to process accounting and other data in such a way as to satisfy the needs of different levels of management.
This can be illustrated by graphing the short run total cost curve and the short-run variable cost curve. In these, circumstance, the selection of the alternative which maximize contribution is the correct decision rule. The key to optimizing manufacturing costs is to find that point or level as quickly as possible. Thus, the need for uniform costing arises because of differences in size and organisation set up, wage structure, methods of production and degree of automation and application of different methods and principles of cost accounting. The stocks of finished goods and work-in-process are valued at marginal costs only.
Hence, if in the following week the hotel accommodated 401 guest and has a total costs of N20,010 the marginal costs therefore, reflects the changes accruing in the variable portion of total cost. Marginal cost pricing method is highly useful for public utility undertakings. In many short — run situations the fixed costs remain constant for each of the alternatives being considered and thus the marginal costing approach showing sales, marginal cost and contribution is particularly appropriate. Purpose To show forth the emphasis of contribution in product cost. In this case, we see that an increased cost of production in society creates a social cost curve that depicts a greater cost than the private cost curve.