But usually the concept of opportunity cost is not recorded in the books of accounts. Then also it is a significant factor in the decision making process also.
Decision making is the fundamental nature of the management of an entity. It is necessary to collect, analyze and present the accounting information in an appropriate manner to meet the requirements of various interested groups. Stake holders of the company means those groups of persons who are interested in the organizational functions and affairs. The stake holders of the company means the share holders, lenders, employees, suppliers, customers, competitors, Government as well as the public as a whole. More over, the balance sheet of a company is giving focus on the changes that have taken place in the accounting year. The ultimate object of financial statements is that of evaluate the financial strength and weaknesses of the firm.
Capital budgeting means the planning for capital assets. The decision about capital budgeting means a decision as to whether or not the money should be invested in long term projects. The term budget is a device which helps the management in planning and control of business activities. It is statement relating to the future plans. Budget is essential for business, because it provide management with a plan of operation to be followed during a specified future period. Not only this, but also it is possible to plan and control the income and expenses. A business might have cash budget, sales budget, purchase budget, etc.
The concept of variance analysis is an important concept in standard costing. Variance means the difference between actual cost and standard cost. Variance point out to the management that whether the costs are under their control or beyond It may be either favourable or not. If the actual cost is less than the standard, the difference indicates that there is a positive variance, but reverse on the other hand. Variance analysis is the procedure of evaluating variances by sub dividing the total variances in such a way that the management can assign responsibility for poor performance. Generally the variances may be of cost variance and sales variance. Among them, the cost variance is significant and which may be of three types, material variance, labour variance, and over head variance.
For example, a product requires 50 units of material @ of 3 per unit. The actual consumption of material for manufacturing the same product came to 60units @of 2.80 per unit-
Therefore, material cost variance= Standard cost_ Actual cost.
Standard cost= Standard quantity* Standard price per unit.
I.e. 50*3= 150.
Actual cost= Actual quantity* Actual price per unit
Material cost variance= 150_168= 18(unfavourable)
Material price variance= Actual quantity*(Standard price Actual price)
60*(3_2.80) = 12(favourable)
Material usage variance= Standard price* Standard Quantity Actual quantity)
3*(50_60) = 30 (unfavourable)
Costing and Pricing Decisions
Unit costing is a method which is used by the company when it produces only one product, and when the units are identical. The main object of unit costing is to find out the cost per unit of output. More over, the concept of costing and pricing decisions are related to each other to a great extend. The major discussion about the cost classification, treatment of wages, etc.