Cost Accounting

Pricing:

Cost base: Total manuf. Cost: (Target profit + Total sales and admin)/Vol.*total manuf. Cost per unit = mark-up %. Total manuf. Cost/unit *(1+mark-up)=Price. This method covers manuf. Costs with fair profit margin. Most businesses use Var costs cause we don’t know link between FC, Sales change and prod’n change.

Cost base: Total Var costs: (Target profit + Total FC + selling commission)/Vol.*VC/unit = Mark-up %. Total Var. Cost/unit *(1+mark-up)=Price. This method links to CVP analysis, does not require allocation of FC. Downside – does not cover all costs, we can’t be sure about getting a good profit in long term and doesn’t account for capacity isues.

Absorption and Direct costing:

Absorption: FMOH inventoriable, added to COGS on per unit basis.

Income Statement: Sales-COGS=GM-period costs=AC income

Direct: MOH is a lump sum at end of period – not inventoriable.

Income only different between the two when sales do not = production.

Income Statement: Sales-VC=CM-FC=Profit

Difference in income = (units of production – units sold) * FMOH rate.

Production volume variance (AC only): When production doesn’t = budg. Production. PVV = (actual prod’n - budg. Prod’n) * FMOH Rate.

Favourable = increases profit, add to GM, or subtract from COGS.

Unfavourable = opposite.

Cannibalization – loss of market share to another product (same company)

Penetration pricing – set price low initially, (attract customers)

Loss leaders – making a loss on some products to help other products?

Kaizen – process where product undergoes cost reduction “improvement” – everyone involved). A process where a product undergoes cost reduction even when it is already on the production stage. The cost minimisation can include strategies in effective waste management, continuous product improvement of better deals in the acquisition of raw materials

TQM – continually improving quality of products and processes (everyone involved)

Goal congruence – goals aligned with...