CS Executive Techniques of Costing
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Before understanding the CS Executive Cost And Management Accounting, the topic need to understand the costing techniques and the same is explained below.
Techniques of Costing
Technique of costing means to know how to do costing in a technical way, i.e., in other words, it allows the operation of the cost in an appropriate way with the help of a various system of costing for particular items or activities performed in an organization.
Some of the techniques classified as follows :
- Historical costing :- It is a cost which is determined after they have been actually incurred. This type of costing has limited utility. It means that the cost of a product can be calculated only after its production. This system is useful only for determining costs, but not useful for exercising any control over costs.
- Standard costing :- It refers to the preparation of standard costs and measures from actual costs and analyzing the variations with a view to maintain maximum efficiency in production. In this case the costs of each article are determined before-hand under current and anticipated conditions, then actual costs are compared with the pre-determined costs and deviations known as variances. The reasons for the variances are ascertained and necessary steps are taken to prevent their recurrence.
- Marginal costing :- It refers to the ascertainment of marginal costs by differentiating between fixed costs and variable costs and the effect on profit of the changes in volume or type of output. In this case, only the variable costs are charged to products or operations while fixed costs are charged to profit and loss account of the period in which they arise.
- Uniform costing :- A technique where standardized principles and methods of cost accounting are employed by a number of different companies and firms, is termed as uniform costing. This helps in comparing the performance of one firm with that of another.
- Direct costing :- A cost which is directly related to a particular product or services is known as a direct cost.
In other words, it is a practice of charging all direct costs to operations, processes or products leaving all indirect costs to be written off against the profit in which they arise.
- Absorption costing:- It means charging all costs, both variable and fixed to operation, process or products or process is known as absorption. This differs from marginal costing where fixed cost are excluded.
- Activity-based costing:- Activity-Based Costing (ABC) is a method of assigning the organization’s resource costs through activities to the products and services provided to its customers.
It is defined as a technique of cost attribution to cost units on the basis of benefits received from indirect activities, e.g. ordering, setting up, assuring quality. ABC involves identification of costs with each cost-driving activity and making it the basis of apportionment of costs over different products or jobs on the basis of the number of activities required for their completion.
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