The collection of presentation and analysis of cost data should serve the following essential or user aims:
1. Planning profit by means of
Controlling cost via responsibility accounting.
Measuring annual or periodic profit including inventory costing.
Assisting in establishing selling prices and pricing policy.
Furnishing relevant cost data for analytical process for decision making.
Budget materials cost of quantity and labor costs and predetermined quantities of time required to manufacture each product are basic of these cost elements. These cost pull all factory of overhead and no manufacturing cost that fluctuate with activity must be determined first in order to establish the profit base for the budget sales. Some operating cost very directly in relationship to volume other costs and expense items either are wholly or partially fixed in character. The final budget should represent a conservative operating forecast including all the costs.
Fixing responsibility for the control cost of requires the establishment of definite lines authority. The organization chart present the organization structure the following these lines authority allow the assignment cost control responsibility to specific individuals. These individual should also have a had a hand in determine the planed or budget cost under their control. Not only cost but also sales revenue and profits are made the responsibility the certain managers. Cost and revenue responsibility becomes profit responsibility.
The longer the period the greater the accuracy of the manufacturing process. A company financial statements reflect the result of separating the cost applicable to units sold from the cost applicable to the units inventories. The separation procedure has always been a distinctive feature of cost accounting. The cost reported thereby are historical or past cost short-run interim or periodic detail reports are especially useful for purposes internal control and for the solution of particular managerial problems.
Variable manufacturing cost are assigned first to the unit manufacture and the matched with units sold variable manufacturing costs typically are matched with the initially with the unit sold. Fixed capacity cost are required an arbitrary location to the unit and consequently lead to the possibility of three alternative matching processes.
To match fixed capacity cost assigned to each period in total with revenue in that period (direct costing).
To match manufacturing fixed (capacity)costs on a product unit bases
And to match all over the fixed cost in total each period (absorption costing the generally accepted method).
To match all fixed capacity costs manufacturing as well as no manufacturing on a long-run sales unit basis.