Ashima Negi is teaching live on Unacademy Plus
UGC NET EXAMINATION 2019 METHODS TO UNDERSTAND COST ACCOUNTING IN 60 MINUTES By:- Assistant Professor(Ms.)Ashima Negi Candidate For Doctorate ( Ph.D.) UGC NET-Management. CA(I), MBA Finance, BBA, PGDM-Materials Management, NCFM, TQM & ISO 9000, QS 9000 & Assurance, CCIBL.
CONTENTS INTRODUCTION DIFFERENCE BETWEEN COST ACCOUNTING AND FINANCIAL ACCOUNTIN STANDARD COSTING BUDGETS. ACTIVITY BASED COSTING TRANSFER PRICING.
STANDARD COST ACCOUNTING Standard costing is the practice of substituting an expected cost for a cost in the accounting records. Subsequently, variances are recorded to show the difference between the expected and actual costs. This approgch represents a simplified alternative to cost layering systems, such as the HIFO and LIFO methods, where large amounts of historical cost information must be maintained for inventory items held in stock. al Standard costing involves the creation of estimated (i.e., standard) costs for some or all activities within a company. The core reason for using standard costs is that there are a number of applications where it is too time-consumin collect actual costs, so standard costs are used as a close approximation to actual costs Since standard costs are usually slightly different from actual costs, the cost accountant periodically calculates variances that break out differences caused by such factors as labor rate changes and the cost of materials. The cost accountant may periodically change the standard costs to bring them into closer alignment with actual costs
Standard Cost Variances A variance is the difference between the actual cost incurred and the standard cost against which if is measured A variance can atso be used to measure the difference between actual and expected sales. Thus, variance analysis can be used to review the performance of both revenue and expenses. There are two basic types of variances from a standard that can arise, which are the rate variance and the volume variance. Here is more information about both types of variances A rate variance (which is also known as a price variance) is the difference between the actual price paid for something and the expected price, multiplied by the actual quantity purchased. The rate'" variance designation is most commonly applied to the la or rate variance, which involves the actual cost of direct labor in comparison to the standard cost of direct labor. The rate variance uses a different designation when applied to the purchase of materials, and may be called the purchase price variance or the materi al price variance. Volume variance. A volume variance is the difference between the actual quantity sold or consumed and the budgeted amount, multiplied by the standard price or cost per unit. If the variance relates to the sale of goods, it is called the sales volume variance. If it relates to the use of direct materials, it is called the material yield variance. If the variance relates to the use of direct labor, it is called the labor efficiency variance. Finally, if the variance relates to the application of overhead, it is called the overhead efficiency variance.