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Introduction to Costing - Coggle Diagram
Introduction to Costing
Definition
Defined by Chartered Institute of Management Accountants (CIMA) as “the application of accounting and costing principles, methods and techniques in the ascertainment of costs and analysis of savings and/or excesses as compared with the previous experience or with standards.”
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Element of Costs
Labour Cost
as the cost of employees remuneration as efforts and skills are involved directly and indirectly in the operation of the business. Example: wages paid to carpenter in making furniture.
Expenses
are all other costs besides material and labour. Example: rent, electricity, water.
Material Cost
as the cost of commodities, other than fixed assets introduced into products or consumed in the operation of an organization. Example cost of flour in making bread.
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Conversion Cost
Conversion costs are the combination of direct labour cost and production overhead in order to convert raw materials into finished goods
Costing Terms
Cost Unit: Related to objects, functions or services. It associates with the quantity of product or service rendered.
Cost Centre: Relates to locations, persons, sections or parts of business. It is set up to help the accountant in ascertaining and control cost.
Profit Centres: Units within an organization whose managers are accountable for both revenues and costs.
Investment Centres: Responsibility centres whose managers are responsible for both sales revenues and cost and in addition have responsibility and authority to make working capital and capital and capital investment decisions.