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Learn what cost of goods sold (COGS) is, how it is calculated, and why it is important for accounting and tax purposes. COGS includes the costs of goods bought or made, such as materials, labor, and overhead, and is treated as an expense when income is recognized.
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.
Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. Learn about the objectives, historical development, prevalence and applications of ABC in different sectors and industries.
Learn what a pre-determined overhead rate is, how it is calculated, and why it is used in cost accounting. Find out the common activity bases, the formula, and the sources for this term.
Cost accounting is a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services. It provides the detailed cost information that management needs to control current operations and plan for the future, and uses various techniques such as standard costing, variance analysis, and budgetary control.
Learn what overhead means in business, how it is different from direct costs, and what types of overhead expenses there are. Find examples of administrative and manufacturing overheads, and how they are calculated and allocated.
Indirect costs are costs that are not directly accountable to a cost object, such as a project, facility, function or product. They may be fixed or variable, and are typically allocated to a cost object on some basis. See how indirect costs differ from direct costs and how they are handled in different industries and contexts.
Learn how to break down the cost of a product or service into its various components, such as labor, material, conversion, logistics, subcontracting and overhead. See examples of cost breakdown analysis for transportation and corrugated boxes.