Cost Concepts and Classifications In Cost Accounting

Cost Concepts and Classification In Cost Accounting

Cost Accounting like other management sciences has principles or concepts that guide the preparation of cost statement or information such rules trough not statutory in nature are generally accepted and applied in the preparation of cost information.

The rules include:

Nature, Elements and Classification of Cost

Types of Cost

Cost could either be fixed, variable or semi-variable

               i.          Fixed Cost: is any cost or expenses that are fixed irrespective of the level of activities attained. Fixed cost per unit decrease as output increases. Examples are rent of factory building, managerial salary etc.

ii.         Variable Cost: Is any cost or an expense that varies with the level of activities, variable cost per unit remains constant. Examples of variable cost are raw material, wages etc.           

                                  

The Human Elements and Current Issues in Business

THE HUMAN ELEMENTS IN BUSINESS

The human elements in business are very important because business itself depends on people as investors, customer’s employees and as managers.Individuals too depend on business to provide them with goods and services to satisfy their needs and wants. At every stage of business, people are involved as Investors, employees’, customers or managers. Businesses themselves are a group of people who seek to earn profit by providing goods and services to others. Hence, it is essential to understand the different roles these individuals play.

Definition of Cost Accounting

Cost may be defined as the amount of cash equivalent or the fair value
of other consideration given to acquire an asset at the time of its acquisition or construction.

To the economists, cost is what must be given up in order to obtain something. Accountants, extending the perspective of economist, view cost as the value of economic resources used in the production of goods, services, income or profit. Accounting is a term desired from account and which is simply defined as an expression of transaction.

Brief description of Independent and Mutual-exclusive projects

Independent project

An independent project is one where the decision to accept or reject the project has no effect on any other projects being considered by the company. For example the decision to replace a company's computer system would be considered independent of a decision to build a new factory. 

Mutually-exclusive Projects

A mutually-exclusive project is one where acceptance of such a project will have an effect on the acceptance of another project. In mutually exclusive projects, the cash flows of one project can have an impact on the cash flows of another. Starbucks decision to buy Teavana will most certainly have a profound effect on the future cash flows of the coffee business as well as influence the decision making process of other future projects undertaken by Starbucks.