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Process costing is an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process. [1] Costs are assigned to products, usually in a large batch, which might include an entire month's production. Eventually, costs have to be allocated to individual units of product.
The pre-determined overhead rate is calculated before the period begins. The first step is to estimate the amount of the activity base that will be required to support operations in the upcoming period. The second step is to estimate the total manufacturing cost at that level of activity.
In accounting, value stream costing (VSC) is a technique of costing which entails identifying and calculating costs for all the process steps required for providing value to the customer. It begins with a mapping and tracking all the process steps that provide the value and then quantification of the value created by each step. [1] [2]
In this method cost is absorbed as a percent of the labour cost or the wages. (Overhead cost/Labour cost)x 100 If the Labour cost is 5000 and the overhead cost is 1000 then the absorption cost is 20%. If the labour cost of one job is 500 it will have to absorb 20% i.e. 100 as the overhead cost making the total cost to be 600.
Direct labour and materials are relatively easy to trace directly to products, but it is more difficult to directly allocate indirect costs to products. Where products use common resources differently, some sort of weighting is needed in the cost allocation process. The cost driver is a factor that creates or drives the cost of the activity ...
Futures contracts and cost basis. Calculating the cost basis for futures contracts involves assessing the difference between a commodity’s local spot price and its associated futures price. For ...
Total cost of ownership (TCO) is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or service. It is a management accounting concept that can be used in full cost accounting or even ecological economics where it includes social costs .
A cost estimate is the approximation of the cost of a program, project, or operation. The cost estimate is the product of the cost estimating process. The cost estimate has a single total value and may have identifiable component values. A problem with a cost overrun can be avoided with a credible, reliable, and accurate cost estimate. A cost ...