Helps in determining selling price Determining and controlling efficiency For preparations of financial and other statements Basis

for operating policy

Shutting down or operating at loss??

Cost volume profit relationship

Make or buy decision

Material
Direct/indirect

Labor
Direct/indirect

Expenses
Direct/indirect

Overheads
Factory/administrative/selling and distribution

Absorption costing Marginal costing Standard costing Differential costing Uniform costing

Focus is more on how to allocate manufacturing costs to the product Dividing variable costs and fixed costs Variable costing to the product and the fixed cost of production are treated as period expenses

Variable costs are charged to the cost units and the fixed costs or the period are written-off in full against the aggregate contribution (sales variable cost).
e.g. If a factory produces 1000 units at a total cost of $3,000 and if by increasing the output by one unit the cost goes up to $3,002, the marginal cost of additional output will be $.2.

The standard cost is a predetermined cost which determines in advance what each product or service should cost under given circumstances. Primarily used to:
Measurement of efficiency

Variance in efficiency (actual vs standard)

Cost control Right decisions

Cost that varies with every alternative. This is useful in decision making where alternative has different cost and revenues. e.g. make or buy decision

When several undertaking start using the same costing practices, they said to be following uniform costing. Basic idea is to follow a similar costing method in the industry for better comparison and common good.

Specific order costing

Job costing batch costing Contract costing

Operation costing
Unit costing Process costing

Operating costing/service costing Composite or multiple costing

Applicable to those industries where the activity being accomplished consists of a task which is specifically identifiable at each stage of production e.g. customized products

Applicable to those industries where the activity consists of continuous or repetitive operations or processes and the products are identical and cannot be segregated. E.g. shirt making factory quality check is repetitive in nature

An accounting system used to apply costs: To similar products That are mass-produced In a continuous fashion

Cost are assigned to each job; used where finished products can be individually identified

A shrinking customer base and consolidation of power More distributor channels chasing fewer margins Distributor consolidation Technological sea change

Thank you