Fixed Cost And Period Cost Accounting Essay

Cost is an sum has to pay for bring forth the merchandise. Cost is defined as the value of the forgo made to acquire goods or services, calculated in dollars by the decrease of assets or incurrence of liabilities at the clip the benefits are get. At the clip of accomplishment, the cost incurred is for present or future benefits. When these benefits are utilised, the costs become disbursals. Management is invariably faced with doing picks among alternate classs of action. Information about assorted types of costs and their behavioural forms is critical to effectual determination devising. Datas can be visualized as being in one big cost accounting information pool that is routinely accessed for intents of merchandise costing and public presentation rating and managerial determination devising.

Cost categorization is group cost of the procedure, harmonizing to their common features. An appropriate cost class to find the cost centre or cost unit cost is indispensable. The cost can be divided into the features of the nature of the accounting, stuffs, labour and costs. The same cost figures are based on different bing methods, depending on the intent and demands peculiar attending. Important ways of categorization are:

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First categorization is classs, harmonizing to elements of merchandise. The cost divided three type is stuffs, labour and disbursals. Material cost is merchandise a peculiar work order or proviso of a service. Labour cost is defined as the entire disbursals bear by employer when demand employ workers. Expenses are defined as money expended or cost incurred usage for bargain natural stuff and other cost of making concern.

Second categorization is cost relationship to production. This categorization is straight related to the cost elements of a merchandise for illustration stuffs cost and labour cost.The two type on the footing of their relationship to production, are premier costs and transition costs. Prime costs is disbursals for the stuff and labour utilizations in production and mensurating the entire cost. Conversion cost is direct and indirect outgo incurred in change overing.

Third is costs relationship to volume. Costss will alter with merchandise volume difference volume difference cost. For illustration 750ml shampoo RM7 and 1500ml shampooRM13. Perceptive their behaviour is really of import in about all facets of merchandise costing, public presentation rating, and direction determination devising. Costss in relationship to volume are classified as variable, semi-variable, and fixed.

Fixed Cost / Period Cost: Fixed costs are a costs does non alterations with lessening or increase in the sum of goods and service produced. For illustration rent of mill.

Variable Cost / Product Cost: Variable costs are the entire cost over a period of clip for the variable inputs. Any addition in the volume of production consequences in an addition in the variable cost and frailty versa. For illustration of variable costs is cost of natural stuff.

Semi-Variable Cost / Semi-Fixed cost: These costs are in portion fixed and in portion variable. For illustration: fix machine fees.

Fourth categorization is direction ‘s ability to follow a cost may be considered direct or indirect depend on the ability to pull off traced it to specific occupations, sections, gross revenues parts, and so on. Direct costs are costs that direction is capable of following to specific things or country. Examples of direct costs are direct stuffs and direct labour costs for a specific merchandise. Indirect costs are costs that are common to many things and are therefore non straight traceable to any one thing or country. Indirect costs are normally charged to points or countries on the footing of distribution techniques.

Fifth categorization is section where incurred a section is a major functional division of a concern. Costing by section helps direction to command the costs and to deliberate income. The following types of sections are found in developed companies: Production sections. These supply straight to the production of the thing and include sections in which production procedures take topographic point. They include manual and machine operations straight performed on the merchandise mill. Service sections that are non straight related to the production of an point. Their map is to supply services for other sections. Examples of service sections are paysheet, mill office forces, cafeteria, and works security. The cost of the service sector is normally assigned to the production sector, because they provide services to profit.

Sixth categorization is functional country on the footing of Function: A Production, disposal, selling & A ; distribution are three of import maps of a company concern. Taking these maps into consideration, costs have been classified by:

Production or Manufacturing Cost: Fabrication costs are those costs which are incurred in the class of industry. It includes cost of natural stuff, cost of labor, other direct cost and mill indirect cost. Example of production or fabrication costs for illustration is rent and electrify fee.

Office and Administration Cost: These costs are incurred for the general disposal of the endeavor. It includes office costs every bit good as disposal cost. For illustration, wage of office staff, rent of office edifice, electricity charges, audit fee, printing and letter papers etc.

Selling and Distribution Cost: It includes both selling cost every bit good as distribution cost. Selling costs are those costs which are incurred in connexion with the merchandising of goods and services Distribution costs are those costs which are incurred on despatch of finished goods to the consumers. Example of selling and distribution costs are: gross revenues work forces salary, wadding charges, passenger car, out ward, advertizement, ware house charges etc.

Seventh categorization is period charge in income. Costss may besides be classified on the footing of when they are to be charged against gross: Some costs are foremost recorded as assets ( for illustration, capital outgos ) and so expensed ( that is, charged as an disbursal ) as they are used or expire. Other costs are ab initio recorded as disbursals. The categorization of costs into classs associating to the periods they benefit AIDSs in mensurating income, in fixing fiscal statements, and in fiting disbursals to gross in the proper period. Two classs used are merchandise costs and period costs: Merchandise costs are costs straight and indirectly identifiable with the merchandise. They are direct stuffs, direct labour, and mill operating expense. These costs provide no benefit until the merchandise is sold and are, hence, inventoried upon completion of the merchandise. When the merchandises are sold, the entire merchandise costs are recorded as an disbursal, called the cost of goods sold. Cost of goods sold is matched against gross for the period in which the merchandises are sold.

Eighth Classification is cost Relationship to Planning, Controlling, and determination devising. Costss that support direction in its planning, commanding, and decision-making maps are briefly defined as follows.

Decision devising costs these are particular purpose costs that are applicable merely in the state of affairs in which they are complied. They have no cosmopolitan application. They need non bind into everyday fiscal histories. They do non and should non conform to the accounting regulations.

Controllable costs these are the cost which can be influenced by the action of a specified member of an project. A concern group is normally divided into a figure of duty Centres and each Centre is headed by an executive. The executive can therefore command the costs incurred in that peculiar duty Centre.

Uncontrollable costs are costs which can non be influenced by the action of a specified member of an project.

Committed fixed costs are ineluctable in the short term if the organisation has to work.example are depreciation and rent.

Discretionary fixed costs are those which are set at a fixed sum for specific clip period by direction.for illustration are research and development costs, advertisement and market research disbursals.

Relevant costs are those costs which would be changed by the managerial determination, while irrelevant costs are those which would non be affected by the determination.

Opportunity Costs refers to the advantage, in mensurable footings, which has been foregone on history of non utilizing the installations in the mode originally planned.

Shutdown Costss as a company rendering service may hold to suspend its operations for a period on history of some impermanent troubles such as deficit of natural stuffs, non handiness of labor.


The private sector consists of in private owned and operated by certain identified people. These people are working for and trust on the house, for their life. The most cardinal aims of the houses in private sector.Sole bargainer or exclusive proprietary and partnerships are private sector.

A exclusive trading or exclusive proprietary is concern which a individual single uses his or her ain fund to get down and run concern. As such, he or she owns all net incomes generated by the concern. However, the proprietor has to shoulder all losingss personally. Besides, the proprietor is ever responsible for the day-to-day direction of his or her company. For illustration, the income from the concern is included as income on the proprietor ‘s single income revenue enhancement return. The concern does non hold its ain revenue enhancement return.

Additionally, legal duty is non available to the public fiscal histories of a exclusive trading concern. Unlike incorporated concern, proprietors of exclusive trading concern have to transport the debts themselves. Examples of exclusive proprietary concern are: hairstylists, shopkeepers and pipe fitters. In the class of running concern, a exclusive proprietary accumulates fiscal information such as the cost of stuffs, equipment, rent, electricity and income from sales-but is non required by jurisprudence to do any of that fiscal information available to the populace.

On the other manus, partnership is a corporate association that its rank is in between two and 20 members. Partnerships do non hold a separate legal entity. All spouses provide necessary finance to concern. They would portion net incomes and shoulder losingss harmonizing to different per centums, and the per centums will be depending on their part to the company. Partnerships have unlimited liability and each spouse is jointly apt with the other members for any debt incurred by the concern.

A partnership understanding is normally drawn up by the a attorney ( or legal advocate ) , which inside informations the part ( in hard currency or in sort ) , function and duty of each spouse, conditions under which the partnership may be terminated, distribution or compensation in the event of backdown of one spouse ( expiration of partnership ) and options passing intra-partner differences. Personal names or trade names can be used as concern names, and the application of concern name signifier must be filled in before a concern can be registered. For illustration if the company is sued for go againsting an employee ‘s civil rights, so the spouses are lawfully apt.

Two types of partnership:

Ordinary partnership

All partnership are ordinary who have unlimited liabilities.

The entryway of new spouse must be permitted by all bing spouses.

Equal rights enjoyed.

Limited partnership

All spouses have limited liabilities but at least one ordinary spouse.

Merely ordinary spouse can take portion in the direction of the concern.

Limited spouse can inspect the partnership ‘s fiscal records and give advice.

Reasons for disintegration of partnership:

If the spouse dies

Company insolvent

Unsound head

Aim achieved

Duration terminal

New Torahs

Sole Proprietorship


A individual who enters concern on his ain history ( utilizing his /her ain money as the capital, capital is really low ) .

Oldest, simple and most common type of concern.

Decision made by the ain alone.

2 to 20 people carry on a concern with a common purpose.

Business purpose: seeking to accomplish larger graduated table through increased capital, shared duty, cut down competition, and shared experience /skill/expertise /ideas

Spouses are people who contributed capital within this concern.


Exclusive bargainers


Personal exposure

A exclusive bargainer ‘s demands personal bears the hazard exposure to the concern debts. So exclusive bargainers demands use ain financess settle the deficit.

Spouses portion the debts of the concern.


A exclusive bargainer by and large is last stature but it is easy set-up and normally involves merely a individual director.

Partnership frequently greater stature than a exclusive bargainer because more individual involved in the concern.

Cost of puting -up

Sole bargainer no demand bears official disbursals and no demands any understandings between the proprietors.

Partnership no official costs involved in get downing a partnership concern, but there are understandings between the spouses.


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