- It focus on the process that of determining how much it costs to produce a product.
-it includes the allocation of overhead and other costs allocations system including:
-Variable and absorption costing
-Joint-product and byproduct costing
-Job order costing
- Activity-based costing
- Process costing
- Life-cycle costing
- operating costing
- Backfluh costing.
Classification of costs
Costs based on the level of production:
1- Fixed costs:
- It doesn't change with the relevant range of the production
- The total amount of this cost doesn't change with change in production; however the cost per unit decreases when the production increases
- Relevant range: is the range in which the cost is fixed, that means within the relevant range an increase in units produced won't cause increase in total fixed cost.
- If the company needs to exceed the relevant range (moves to another relevant range) fixed cost will increase.
-within the relevant range the fixed cost still unchanged however fixed cost per unit decreases with increasing in the level of production.
2- Variable cost:
Those costs are incurred when the production is made such as: direct material and labor…. Variable cost increases as the production increase but per unit variable cost remain unchanged as production increase or decrease.
-in reality, variable cost may change as production increases this as a result of discounts are received when more unit are purchased this in larger production.
-it's incurred if the company only produced units , if the company doesn't produce units, there won't be a variable cost …direct material and labor are also variable costs ,however , direct labor may be fixed cost.
-variable cost increase as the production level increase but variable cost per unit remain unchanged.
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