Transaction costs are expenses incurred when buying or selling a good or service. In a financial sense, transaction costs include brokers' commissions and spreads, which are the differences between the price the dealer paid for a security and the price the buyer pays.
Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future. Cost accounting information is also commonly used in financial accounting, but its primary function is for use by managers to facilitate their decision-making.
It can have monetary value as something that can be purchased or sold. It can have value as the intellectual property of the person who created it. It can also have value because it can be used to exert (or gain) power and influence.
The value of information is determined by its importance to the decision maker or to the outcome of the decision being made.
noun. knowledge communicated or received concerning a particular fact or circumstance; news: information concerning a crime. knowledge gained through study, communication, research, instruction, etc.; factual data: His wealth of general information is amazing. the act or fact of informing.
Characteristics of Information
- Availability/accessibility. Information should be easy to obtain or access.
- Accuracy. Information needs to be accurate enough for the use to which it is going to be put.
- Reliability or objectivity.
- Relevance/appropriateness.
- Completeness.
- Level of detail/conciseness.
- Presentation.
- Timing.
Decision making is fueled by information. As individuals, we move around based on muscle and brain information. The value of the information directly affects the overall outcome of business processes. Let's examine the characterizes good information and how valuable information is an important factor in business.
By knowing the value of information and its foundation, information can be improved and can provide better support in decision making. The model is concise, clear and broadly applicable, though it should be adapted to the organization to get the most out of it.
The source of information is a key factor in affecting the value of information, logically an information from a credible source will hold more value, compared to hearsay or myth passed around.
Management information system provides knowledge about the relative position of the organization and basic forces at work. It provides the right information needed in decision making process and help the organizations control, planning and operational functions to be carried out effectively (Reddy, 2090).
Value of information analysis (VoI) is a means of valuing the expected gain from reducing uncertainty through some form of data collection exercise (e.g., a trial or epidemiological study). As such, it is a tool which can be used to assess the cost effectiveness of alternative research projects.
The other costs can be fit into either the fixed or variable categories. Direct, indirect, fixed, and variable are the 4 main kinds of cost. In addition to this, you might also want to look into operating costs, opportunity costs, sunk costs, and controllable costs.
In this article, we'll cover:
- Financial Accounting.
- Cost Accounting.
- Auditing.
- Managerial Accounting.
- Accounting Information Systems.
- Tax Accounting.
- Forensic Accounting.
- Fiduciary Accounting.
A cost sheet is a statement that shows the various components of total cost for a product and shows previous data for comparison. You can deduce the ideal selling price of a product based on the cost sheet. A historical cost sheet is prepared based on the actual cost incurred for a product.
Types of Costs
- Fixed Costs (FC) The costs which don't vary with changing output.
- Variable Costs (VC) Costs which depend on the output produced.
- Semi-Variable Cost.
- Total Costs (TC) = Fixed + Variable Costs.
- Marginal Costs – Marginal cost is the cost of producing an extra unit.
Accounting costs are the explicit costs, also known hard costs that are seen as money out of your bank account that you need to run your business. These are production costs, lease payments, marketing budgets and payroll. In other words, these are the real costs in manufacturing, marketing and delivering your products.
Cost Accounting is a method of accounting wherein all the costs involved in performing any process, project or product are noted and analyzed. Such analysis helps the management in taking strategic decisions. Cost accounting uses various techniques to make an organization cost effective.
Total Cost = Total Fixed Cost + Average Variable Cost Per Unit * Quantity of Units Produced
- Total Cost = $20,000 + $6 * $1,500.
- Total Cost = $29,000.
The main costing methods available are process costing, job costing and direct costing. Each of these methods apply to different production and decision environments. The main product costing methods are: Job costing:This is the assignment of costs to a specific manufacturing job.
Method of Preparation of Cost Sheet:Step I = Prime Cost = Direct Material + Direct Labour + Direct Expenses. ADVERTISEMENTS: Step II = Works Cost = Prime Cost + Factory/Indirect Expenses. Step III = Cost of Production = Works Cost + Office and Administration Expenses.
Types of costs
- Fixed costs. Fixed costs are costs that do not vary with the level of output in the short term.
- Variable costs. A variable cost varies in direct proportion with the level of output.
- Semi-variable costs.
- Total costs.
- Direct costs.
- Indirect costs.
A student spends three hours and $20 at the movies the night before an exam. The opportunity cost is time spent studying and that money to spend on something else. A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources (land and farm equipment).
Unlike variable costs, a company's fixed costs do not vary with the volume of production. Fixed costs remain the same regardless of whether goods or services are produced or not. The most common examples of fixed costs include lease and rent payments, utilities, insurance, certain salaries, and interest payments.
This preview shows page 5 - 7 out of 15 pages. Also known as works cost, production or manufacturing cost, Factory costincludesprime cost along with works or factory overheads. Factory overheads include cost ofindirect material, indirect wages, and other indirect expenses incurred in the factory.
When a company incurs rent for its manufacturing operations, the rent is a product cost. It is common for the rent to be included in the manufacturing overhead that will be allocated or assigned to the products. That rent as part of the manufacturing overhead cost will cling to the products.
The Input Price Versus the Output QuantityA cost function is a function of input prices and output quantity whose value is the cost of making that output given those input prices, often applied through the use of the cost curve by companies to minimize cost and maximize production efficiency.
The following are common types of cost reduction.
- Automation. Doing things automatically with information technology, machines and robots.
- Productivity. Improving the productivity of workers.
- Efficiency. Improving the efficiency of equipment and processes.
- Outsourcing.
- Waste.
- Quality Control.
- Reliability.
Prime costs are a firm's expenses directly related to the materials and labor used in production. It refers to a manufactured product's costs, which are calculated to ensure the best profit margin for a company. Direct costs do not include indirect expenses, such as advertising and administrative costs.
Costing is any system for assigning costs to an element of a business. Costing is typically used to develop costs for any or all of the following: Customers. Distribution channels.
