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CHAPTER 1 General Concepts About Cost Accounting - Coggle Diagram

- - - - A CVU analysis can be applied in special cases like the one adopted here; It is worth highlighting its convenience when managerial decisions cannot be significantly improved with the use of a perhaps more sophisticated and complicated model. It is then assumed that the total cost of a cost object is the result of adding the variable costs (including both the direct variable costs and the indirect variables) and the fixed costs (direct fixed plus indirect fixed), thus:
        
        Total cost = Variable costs + Fixed costs
        
        Operating income is then the difference between total income and these total costs:
        Operational Income = Total Operational Income - Total Cost
        
        To simplify, it is assumed that revenues and non-operating costs are equal to zero, that is, they do not exist, so that the Net Income equation looks like this:
        Net income = Operational income - income taxes
        
        Each sector of the industry uses to calculate its operating income, different measures of its production volumes, whether manufactured or sold.
- - - - Different decisions regarding the relocation of a company's inputs, such as the allocation of a sale price, the profitability of products, services or customers, distribution channels, etc.
        
        The planning and cost control of various operations and activities, which implies reporting on the income, costs, assets and liabilities of departments, plants and other areas of responsibility.
        
        Measurements of process and people performance, which implies measuring results against plans, for which both financial and non-financial figures can be counted on.
        
        Compliance with the legal requirements of a company, both internal and external, in accordance with rules and regulations established by a Government or by a public or private association belonging to an industrial sector.
- - - - In the study of adoption, initially 27 variables generated from the ABC perspective were used, which were later reduced to these 9 factors: size of the companies, competitiveness, differentiation, quality of processes, automation, strategic importance of costing, budget control , diversification
        of products and relevance of variables linked to economic losses.
        
        The main and most notable advantages of the ABC method are:
        
        Provide a better knowledge and understanding of the factors that generate costs.
        
        Facilitate the distinction between costs that add value to a production system and those that do not.
        
        Facilitate profitability analysis of a product, a product line or a customer.
        
        Enhance the knowledge of total costs through a personalized process.
- - - - Cost reduction efforts in businesses often target two key areas:
        
        Execute only those activities that add value to the product, that is, only those activities for which customers are willing to pay for the products or services they purchase.
        
        Efficient administration in the use of cost generators 1 applicable for activities that add value to the product.
        
        Cost behavior patterns: variable and fixed
        
        In practice, there are various approaches (including some specific to each company to classify costs, however we can see that from the point of view of the person responsible for a process, only two approaches to costs are relevant: the first, aimed at describing the costs and, the second, the employee
        to determine the financial viability of a production proces
- - - - Batch-based cost system: in this system, costs are assigned to a unique unit or to a batch of similar units of products or services. A job is a task that consumes resources that are used to bring a product or service to the consumer market; the product or service is often tailored to the client's wishes, just as a consulting law firm does.
        
        Process cost system: in this system the costs of a product or a service are calculated using an average applied to a large volume of similar products. Generally, the elements produced are oriented towards a mass of consumers (like the pencil with which they are written, for example) and not towards a specific client.
        
        There are six steps that will be explained here as a methodology applicable to batch-based costing systems that can be applied to both service companies and the commercial and manufacturing sector.
        
        These are:
        
        Identify the work to be done with respect to a specific cost object
        
        Identify the direct costs of this work
        
        Identify the indirect costs associated with this job
        
        Select the cost allocation basis to be used for indirect costs associated with this job.
        
        Determine the base unit rate for assigning indirect costs to this job.
        
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