Fundamentals of Cost Accounting Study Set 4

Business

Quiz 2 :
Cost Concepts and Behavior

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Quiz 2 :
Cost Concepts and Behavior

Cost:- The term "cost" is related to sacrifice of resources. In layman terms, what we are sacrifice to acquire any product or service. Expense:- The term "expense" is a cost that is charged against from revenue in an Accounting period. In layman terms, it is just a deduction from revenue in that Accounting period. Distinguish among Cost and Expense Definition:- Cost:- The term "cost" is related to sacrifice of resources. In layman terms, what we are sacrifice to acquire any product or service. Expense:- The term "expense" is a cost that is charged against from revenue in an Accounting period. In layman terms, it is just a deduction from revenue in that Accounting period. Nature Cost:- Cost is linked to sacrifice of funds as a result it become assets and expense. In case of assets it shown in Balance sheet in case of expenses it charged from revenue in that Accounting period. Expense:- It is a pure nature of expense and charged form revenue in that Accounting period. Scope:- Cost:- It is broader term and consist of so many functions like cost for particular item and further classification of such product or service into Asset or Expense. Expense:- It is a part of such cost those are charged from revenue of such product and service such as rent, insurance and interest, salary weather direct or indirect and cost of abnormal items, electricity expenses etc. for such Accounting period. Types:- Cost:- It is refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. Outlay cost: - It is a cost related to past, present, or future cash outflow. Opportunity cost: - It is a loss of other alternatives when one alternate is selected. Expense:- It is a kind of an outlay cost which is related to past, present, or future cash outflow and it is charged against revenue for such accounting period.

A cost is a sacrifice of resources. Cost is the amount that we incurred to manufacture a product. In manufacturing companies, the costs are distinguished as product costs and period costs based on when the costs are recognized as expenses on the financial statements. Products costs are those costs assigned to units of production and recognized when the product is sold. Products costs are assigned to the manufacture of products and recognized for financial reporting when sold. Products cost are also called as manufacturing costs. Product costs include cost of direct material, cost of direct labor, and manufacturing overheads. For example, cost of raw material is a product cost. Period costs include all costs other than product costs which are expensed when they are incurred. Period costs are recognized for financial reporting when they are incurred. Period costs are also called as nonmanufacturing costs. Period costs include administrative costs and marketing costs. For example, Insurance on factory building is a period cost, because it is paid every year irrespective of whether products are manufactured or not.

Outlay Cost:- The term "Outlay cost" is related to past, present, or future cash outflow. In layman terms, it's a cost which is incurred in past, incurred in current Accounting period and likely to be incurred in future. Opportunity cost: - The term "Opportunity cost" is the value of alternative forgone born by adopting a particular strategy or employee resources in specific manner. Distinguish among Outlay Cost and Opportunity cost Definition:- Outlay Cost:- The term "Outlay cost" is related to past, present, or future cash outflow. In layman terms, it's a cost which is incurred in past, incurred in current Accounting period and likely to be incurred in future. Opportunity cost: - The term "Opportunity cost" is the value of alternative forgone born by adopting a particular strategy or employee resources in specific manner. Nature Outlay Cost:- Cost is linked to past, present, or future cash outflow a result it become assets and expense. In case of assets it shown in Balance sheet in case of expenses it charged from revenue in that Accounting period. Opportunity cost: - It is a pure nature of alternative value of such item that is adopted in actual in a best alternative way. Scope:- Outlay Cost:- It is consist of three kinds of cost that are past, present, or future cash outflow, it again further require classification to treated it as Asset or Expense on the basis of their useful life. Opportunity cost: - It is a forgone value and on such basis organization decides whether that attractive value is adopted or not. Such alternative value is only for decision making. Types:- Outlay Cost and Opportunity cost: - It is refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. Outlay cost: - It is a cost related to past, present, or future cash outflow. Opportunity cost: - It is a loss of other alternatives when one alternate is selected.

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