Question

explain and describe the various costing method in management accounting.outline their advantagesand disadvantages....


asap

explain and describe the various costing method in management accounting.outline their advantagesand disadvantages.

Answer

Using product costing procedures, a cost is allocated to a product. The most frequent costing methodologies are process costing, cost accounting, direct costing, and throughput costing. Each of these tactics is suitable for different production and decision-making settings. Because the costing strategy used may result in large cost changes, are using the information only for the purpose intended; for example, a costing method established for incremental price decisions may not be acceptable for long-term decision making.

Job costing.

This is the process of allocating expenditures to a given manufacturing activity. Employees must log their time by job, and all supplies are allotted to specific occupations. Overhead is also allotted to tasks. When individual items or batches of products are unique, this strategy is employed, especially when tasks are billed directly to consumers or are likely to be audited by consumers. Each of these strategies is appropriate for various production and decision-making scenarios. Costs can be determined at any stage of a job's completion. This allows for cost reduction by taking appropriate procedures.

Advantage:

2. Upon completion of a task, each cost, selling price, and profit element may be compared to the estimates for the goal of cost management and reduction, maximizing the profit on each job in job costing.

3. Management may estimate the cost of a task based on historical job costing information.

4. The real expenditures of the past work and the current job may be compared.

Disadvantage:

1. There is no work uniformity in job pricing. 

2. Maintaining precise information in job pricing necessitates more clerical effort.

3. Job pricing is costly.

4. There is no cost control since controlling actions are implemented only after incurring expenses in task costing.

5. Accurate cost information is not collected because a large number of minor projects are completed at the same time in job pricing.

 

 

Process costing.

The aggregation of labor, material, or overhead expenses across whole departments or entities, with the overall production cost given to individual units. When vast numbers of the same product are made, typically in extended production runs, process costing is utilized.

Advantage

1. Easy Costing Method

Process costing is a straightforward way of calculating the expenses of each stage or process of manufacturing. Because of the homogeneity of the items, the average cost of the product can be computed quickly.

2. Cost Calculation on a Regular Basis

With minimal clerical and paper work, the cost of each process and the per unit cost of final products may be established on a regular basis at short intervals.

3. Applicability

Process costing is appropriate for standardized items, mass manufacturing, identical or homogenous products, and so on.

Disadvantage:

1. Historical Importance

This pricing approach makes use of historical or previous cost data. As a result, it may not give precise cost information for improved control.

2. Lack of precision

Because it is based on average cost, there is a possibility of inaccuracy or error when calculating the cost of work in progress or finished items.

3. Inadequacy

Process costing is ineffective for a wide range of items. It is only applicable to identical items.

Recent Questions