SLC | S21W2 | Costs for entrepreneurs - Cost elements
Assalam-o-Alaikum! |
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What is the relationship between costs and financial accounting? |
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Financial accounting and costs are closely related since monitoring expenses enables companies to better understand their operational efficiency and where their money is going. It is simple to keep track of direct costs such as labor and materials used directly in the production of a product. On the other hand indirect costs like utilities or maintenance are required for production but aren't directly related to a particular product. Since they offer a comprehensive view of the costs associated with producing products and services both kinds are crucial to financial accounting.
This cost data is used by financial accounting to calculate a company total profitability. Businesses may set reasonable prices and keep expenditure under control by classifying and monitoring both direct and indirect costs. Businesses benefit from this process by making better financial decisions allocating resources sensibly and staying competitive. Accurate financial statements are supported by efficient cost tracking in financial accounting which enables businesses to display real earnings manage expenses and make necessary corrections.
Establish the difference between fixed costs and variable costs, providing examples of each. |
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Here I want to explain few differences between fixed Cost and variable costs with real case examples.
Fixed Costs | Variable Costs |
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Fixed Costs stay the same no matter how much is produced. | Variable Costs change based on production levels. |
Example of Fixed Cost is Rent the company pays the same amount every month. | Example of Variable Cost is Raw materials costs increase as more products are made. |
Fixed costs don’t depend on sales or production. | Variable costs rise with higher production or sales. |
Fixed costs include salaries for managers and insurance. | Variable costs include packaging and shipping per product. |
Fixed costs are predictable and easy to budget. | Variable costs fluctuate, so they’re harder to control. |
In a real or fictional case, identify the cost elements in manufacturing a product or providing a service. |
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They can determine the true cost of making each candle and prevent financial loss by keeping track of both direct and indirect expenses. Additionally this helps individuals make wise financial decisions find strategies to save money and budget for future expenses.Maintaining the company profitability and expansion requires an understanding of these cost components.
The company Steemians manufactures a single product. During a given period, the following costs were incurred:
Indirect Costs are production related expenses that aren't directly related to a particular product. These cover expenses like building upkeep power and the pay of managers who supervise the work. Although they are required for production indirect costs are not exclusive to a single item.
Non Manufacturing Costs are costs required to operate the firm .Non manufacturing expenses aid in product sales and managing the company without having a direct impact on the production process.Now I want to separate the cost of the table as.
Category | Concept | Cost |
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Direct Manufacturing Costs | Direct Raw Material | 13 |
- | Direct Labor | 100 |
Total Direct Costs | - | 230 |
Indirect Manufacturing Costs | Manufacturing Supplies | 210 |
- | Depreciation of Plant &Machinery | 25 |
- | Plant Managers | 65 |
- | Taxes & Plant Insurance | 70 |
- | Building Maintenance | 50 |
- | Public Services | 35 |
Total Indirect Costs | - | 455 |
Non-Manufacturing Costs | Delivery Costs | 70 |
- | Sales Commissions | 65 |
- | Sales & Administrative Expenses | 80 |
- | Maintenance of Distribution Equipment | 65 |
- | Advertising | 20 |
Result
- Total Direct Manufacturing Costs = 230
- Total Indirect Manufacturing Costs = 455
- Total Manufacturing Costs = 685
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I invite @shano49 @malikusman1 and @saboohi to take participate in this contest
Thank you
https://steemit.com/hive-172186/@neelofar/achievement1-my-introduction-to-steemit
WRITER:
@neelofar from Pakistan
@neelofar from Pakistan
It's a very detailed and informative post, @neelofar! You’ve explained the different types of costs very clearly, with relevant examples that make the concepts easy to understand. Best of luck in the contest!