Tiêu đề SEM 2 COST & MANAGEMENT ACCOUNTS CCF.pdf ✅

3 BASIC CONCEPT TYPES OF COSTS; Some of the types o f costs, used most frequently, may now be stated below: a) Historical Cost: it is measured by actual cash payments or their equivalent at the time of outlay for acquiring assets, or goods and services. b) Estimated Costs: it is predetermined cost. c) Standard cost: Most scientifically predetermined cost. d) Total cost: The sum of all costs attributable to a given volume under consideration. e) Average cost: it is the unit cost which is computed by dividing the total cost by the volume involved. f) Marginal cost: Measured by the change in cost due to change in output by one unit. g) Differential cost: Change in total costs at a particular level of activity with respect to another. This is also known as incremental cost. h) Replacement cost: This is current cost of replacing an asset. i) Opportunity cost: It is the measurable advantage forgone as a result of the rejection of alternative uses of resources, whether or materials, labor or facilities. This cost does not involve any cash outlay and is computed only for the purposes of comparison in the context of managerial decisions and hence does not find a place in financial accounts. j) Imputed cost: It is a hypothetical cost and does not involve actual cash outlay, and, as a consequence, does not appear in the financial records. Nevertheless, such costs involve a foregoing on the part of the person or persons whose costs are being calculated. For example, interest on own capital, rent on own premises, etc. do not find their place in financial accounts as they are not payable, but for determining cost figures on a comparable basis they may be often included in ‘costs’. k) Sunk costs: It represents historical cost which is irrecoverable in a given situation. For example, while considering the replacement of asset, the depreciated book value of existing asset may not be taken into account on the ground that this portion of the cost having been already incurred in the past has no relevance to the present decision. l) Discretionary cost: They are fixed costs that arise from periodic, usually yearly, appropriation decisions that already reflect top management policies. These costs may not have any particular relation to the ‘volume of activity’. Examples are employee training programmes. Research and development, advertising, sales promotion, donations, management consulting fees, etc. In contrast to commuted costs, these costs could be reduced almost entirely for a given year if circumstances so demand. m) Controllable costs: These are the costs which can be influenced by the action of an individual in an enterprise within a given time span. But few costs are clearly under the influence of some person in an organization and few items of costs are susceptible to control at all levels. Another major aspect is the ‘time period’. With enough time, virtually all costs will be controllable by somebody in an enterprise. Thus, controllability of an item of a cost depends on the area of managerial responsibility and the time factor involved. n) Relevant costs: Costs appropriate to aiding the making of specific management decisions are called relevant costs. These are expected future costs that will differ under alternatives. Future variable costs generally become relevant in a decision context while fixed costs may be irrelevant if they do not change in total. Again, fixed costs may be considered when they are expected to be altered, either immediately or in the future, by the decision at hand. o) Policy costs: These costs are incurred as a result of taking a particular policy decision. For example, ownership of assets will create a charge for depreciation. Depreciation is, therefore, a policy cost. Other terms used include fixed costs and period costs.