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Cost Accounting Methods - Essay Example
Cost accounting is the method used by entrepreneurs to monitor cost in order to quantify and qualify decision making process in running their respective businesses. Variable cost normally details the expenses classifications like labor, raw materials, electricity, and all other cost that tends to vary with regards to amount and usage…
The aim is always to get the edge on the competition, getting ahead in the market in terms of product costing, design and packaging, quality and availability. However, improving the efficiency of manpower and machine while reducing cost and without sacrificing customer value is one important point in cost accounting that makes review of a company's financial profile as delicate and argumentative between departments as ever.
Historical Cost Accounting is the traditional cost accounting method wherein the assets are being valued at their original cost less their accumulated depreciation. Herein the revenues, expenditure and asset acquisition / disposition are being recorded according to their actual value or amount received and paid to complete the transaction. It allocates a company's fixed cost in a certain period to the cost of items produced during that period and records their result as total production cost.
Example: I purchased a 100 sqm lot for $5k per sqm in 1995, however its value has appreciated to $20k per sqm in 2006. The amount of the lot or the book value of the asset that will be recorded in the books is still in the value of $5k per sqm.
Advantages: This will let us record the book value as to its historical cost or actual value and thereby make our books consistent as to the assignment of values with reg ...