types of expenses in accounting pdf

0000266174 00000 n are considered as part of the prime cost and some materials which are contained in small quantities in the end product like gums and threads used in binding the books even though forming part of direct material cost, but is considered not worth analyzing to cost units and may be categorized as indirect material cost. 0000004122 00000 n � ��I�ȯ_��L\��1ġ��8�iғJM�Da�Q�V�q��HU��1�R.�� {>�ipӭ��/�>)��^�ؽ�;՝�~��0v_�J�N��v��e�(��C�� The normal cost is normally incurred at a given level of output in the conditions in which that level of output is achieved. 0000258294 00000 n 0000013748 00000 n Sunk costs are always results of decisions taken in the past. Technically, expenses are "decreases in economic benefits during the accounting period in the form of decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to … are the direct materials that becomes part of the finished product. 0000006602 00000 n All expenses which appear in Trading Account (except purchases) like Labor Power Electricity Expense (Factory) Loading Unloading Expense Warehousing Expenses Custom Clearing Charges Carriage Freight & Cartage Import duty Wages Coal & Fuel Coal, Gas & Water of Factory Consumed Material Export Duty . For example, cost of material and labour must be incurred if production is to take place. 0000268793 00000 n 0000011264 00000 n Thus, it need not be considered by the management in evaluating the alternatives as it is common to all of them. 0000008672 00000 n 0000253671 00000 n The controllability of cost depends upon the level of responsibility under consideration. These costs are also called as ‘out of pocket costs’. The abandonment costs are the cost of retiring altogether a plant from service. 0000006948 00000 n While they can be challenging to budget for, this is my favorite category because this is where we have all the control. The controllable cost is a cost that can be influenced and regulated during a given time span by the actions of a particular individual within an organization. They are expenses outside the company’s core business. Normal cost includes those items of cost which occur in the normal situation of production process or in the normal environment of the business.

While they can be challenging to budget for, this is my favorite category because this is where we have all the control. Costs reported by conventional financial accounts are based on historical valuations. 0000003898 00000 n Accounts are maintained for cost of a process for a period. Cost Classification in Relation to Cost Centre 3. Such deferred expenses are charged to future production. Cost Classification by Time 4. The direct expenses refers to expenses that are specifically incurred and charged for specific or particular job, process, service, cost unit or cost centre. Image Guidelines 4. 0000008626 00000 n 5 0 obj %�쏢 Before uploading and sharing your knowledge on this site, please read the following pages: 1. x��}�$�u$[��Y2��Z�f׻ˉ�� &�@>��Ȳb@4b��TU��Ω�;{��=��s~�Y�x�љ8�pӿ�_}��˿ ��09�9��u��?x{ When spoilage occurs in manufacture in excess of normal limit, the resulting cost of spoilage is avoidable cost. 0000008535 00000 n Cost variances which are controllable may be termed as avoidable cost. Financial Expenses. This cannot be changed by any decision in future. Cost Classification in Relation to Cost Centre: Type # 4. (4) Architects, surveyors and other consultation fees of particular job or work. The direct material costs are those which can be identified easily and indisputably with a unit of operation or costing unit or cost centre. Avoidable cost can be identified with an activity or sector of a business and which would be avoided if that activity or sector did not exist.
0000007394 00000 n It can be used in any business situation or decision making which does not require accurate cost. qI(�:w��u��uM7fo��&f%��>�"q�p��}��S�QN��)@�:��Olz��Y�OA�Q�a�& ��W4��n��Y��#2A��ښ��A��GI�i��@�b�@p��1G �Q�H��`KC�f6FH�u�v��͛�t$'�E$�2�1D0Y#��}�1Nex� It is a predetermined cost based on past performance adjusted to the anticipated changes. The avoidable costs are those costs which under given conditions of performance efficiency should not have been incurred. Financial statements, i.e. These costs cannot be influenced by the action of a specified member of the organization. (2) Royalties payable on use of patents copyrights etc. Opportunity costs represent income foregone by rejecting alternatives. Operating costs refer to the cost of undertakings which do not manufacture any product but which provide services. In management accounting, as in financial accounting, it may be said that a major building block in the conceptual foundation is cost. Expenses represent the cost of doing business where doing business is the sum total of the activities directed towards making a profit.

Labour cost includes salaries and wages paid to permanent employees, temporary employees and also to employees of the contractor. Avoidable cost will often correspond with variable costs. It is the cost that must be incurred under a program of business restriction. Cost Classification for Decision Making: Type # 5. types of accounting are examined in the following paragraphs. The direct cost component of product cost is decreasing while depreciation, engineering and information processing costs are increasing. All expenses which appear in Trading Account (except purchases) like Labor Power Electricity Expense (Factory) Loading Unloading Expense Warehousing Expenses Custom Clearing Charges Carriage Freight & Cartage Import duty Wages Coal & Fuel Coal, Gas & Water of Factory Consumed Material Export Duty It is the cost incurred to convert raw materials into finished goods. The challenge to budgeting … It is an added cost of a change in the level of activity. For example cutting oil used in cutting surface, threads and buttons used in stitching clothes, lubricants used in maintenance of plant and machinery, cotton waste used in cleaning the machinery etc. Expenditure on account of utilities, payment for bought-out services, job processing charges etc. These costs are incurred from the initiation of project till its formal commercial production. Naturally historical costs must be adjusted to reflect current or future price levels. Raw materials are directly identifiable as part of the final product and are classified as direct materials. This concept is similar to the economists’ concept of marginal cost which is defined as the additional cost incurred by producing one more unit of product. The average cost per unit produced during the period is process cost per unit. For example, salaries and wages paid to store keepers, watch and ward, supervisors, timekeepers, quality control, managers, clerical staff, salesmen etc. These costs are also called as ‘escapable costs’. When a production process is such that from a set of same input, two or more distinguishably different products are produced together, products of greater importance are termed as joint products and products of minor importance are termed as by-products and the costs incurred prior to the point of separation of the products are termed as joint costs. 0000008718 00000 n are the examples of indirect expenses. Generally, monthly bills are payable for them. �Hݚ�)��_&�?�QFM�q��z��>�}~�}��ο~��}��mG�U��vc�(.��$a�36:�3��W漏��b�. The period cost is a cost that tends to be unaffected by changes in level of activity during a given period of time. different types of costs required by the various models. The costs of inputs in forming the product viz., the direct material, direct labour, factory overhead constitute the product costs. 0000005286 00000 n 0000265463 00000 n

0000243424 00000 n 0000245880 00000 n 0000252129 00000 n 0000005311 00000 n Some of the examples of direct expenses include the following: (1) Cost of drawings, designs and layout. Cost of indirect material, indirect labour and indirect expenses in aggregate constitute the overhead costs and are the indirect component of the total cost. In management accounting, as in financial accounting, it may be said that a major building block in the conceptual foundation is cost. 0000244381 00000 n

Interest on capital is common type of implicit cost. The normal idle time is to be included in the ascertainment of normal cost. In this process the costs which are affected by the decisions are future costs. Report a Violation 10. The abandonment cost is the cost incurred in closing down a department or a division or in withdrawing a product or ceasing to operate in a particular sales territory etc. 0000268276 00000 n b. It can also be defined as any cost which is affected by the decision at hand. The third type of expense is Variable expenses. The urgent costs are those which must be incurred in order to continue operations of the firm.

0000008116 00000 n The types are: 1. These costs are recorded in the books of account and can be easily measured. Content Filtration 6. These costs are also called as ‘common costs’. Variable expenses are the money you spend on food, clothing, and entertainment.
0000250340 00000 n These costs are also called ‘traceable costs’. 0000249339 00000 n If the object of interest for identifying and measuring cost is to determine how much sacrifice is involved in manufacturing a particular product, then initially one can define the three elements of total cost i.e., materials, labour, and expenses. These costs are also called as ‘imputed costs’ or ‘notional costs’. 0000029403 00000 n Rent would then replace depreciation and interest. x�b```b`�8��d�af@ a6�(�: ��a�t�̗xK �Ԙ�28=�P�H,��`�ۙ�nw��g �b�qL⒐pZxD�o��l�uq&(��`Q�X��̙jT��Kw��E�S�4�='�Zut�� *"��J \,��r�$��S��xCMi��֚�&j�U�� b8�1 The indirect costs are not traceable to any plant, department, operation or to any individual final product. These costs include preliminary expenses, trail run costs etc. Non-capital equipment, i.e. 'Expenses' in accounting Background to 'expenses' in accounting. The replacement cost is a cost of replacing an asset at any given point of time either at present or in the future (excluding any element attributable to improvement). Cost Classification by Nature: The total cost of a product or service is basically classified into material cost, labour cost and expenses as follows: i.

0000006856 00000 n For example excessive scrap may arise from inadequate supervision or from latent defect in purchased material. These are the costs other than material cost or labour cost which are involved in an activity.