What is Notional cost?
Notional means imaginary, speculative or conceptual i.e. something that has no actual existence and is mere imagination. Same way a notional cost is an imaginary cost which is sometimes included in the cost units and cost centers to make costing estimates more realistic or simply more challenging especially when the performance of cost unit and […]
What is Responsibility accounting?
In order to make the organization working at its best and reaching its potential to achieve objectives, the actual results are compared with the targets. And if those targets are not achieved someone must be held responsible. Because without accountability we cannot control business operations and cannot ensure the effective and efficient achievement of business […]
What is the difference between budgeting and forecasting?
Budgeting and Forecasting are two important constituents of managerial decision making process. Even though both of these functions are distinct and are not same but their use and their dependency on each other make them inseparable and thus many confuse the two as same and use them interchangeably. Let’s understand the technical difference between these […]
Why Throughput accounting is not Throughput costing?
Throughput accounting is a well know management and accounting technique in cost accounting. And has gained much popularity because it has integrated the reasons to increase profits with the reasons that curtail business organizations from maximizing profits. While defining Throughput accounting and even in its calculations, one can observe that this philosophy do not provide […]
What is meant by Shadow prices?
Shadow price or dual price is a quantitative technique to analyze the improvement in the contribution or costs by having one additional unit of a resource which is causing a bottleneck. This analysis basically helps management in deciding whether a struggle to uplift the constraint is worthwhile or not. Before we look at the definition […]
What is meant by Apportionment of overheads?
Most of the time overheads are not caused by a single product or a cost center and are jointly incurred on one or more product or by one or more departments. Therefore, we cannot charge such overheads specifically to each department or simply they cannot be allocated. Even though we cannot charge some kinds overheads […]
What is meant by Allocation of overheads?
While calculating overheads and especially working out overheads distribution sheet we came across the term “allocation” and during the distribution of overheads, we allocate, apportion and re-apportion overheads. Each term has separate meaning and should not be considered as one and the same. It must also not be confused with usual division of overheads. Allocation […]
What is Throughput (Through put) costing / accounting?
Throughput accounting is a production management philosophy introduced by M. Goldratt. According to throughput theory, managing the business with a view to maximize profit is not only ignoring the much important variables (like customers demands, needs and affordability) but also push the organizations towards inter-departmental conflicts. According to throughput accounting, management should be concentrating on […]
What is prime cost?
Prime cost is a sum of all the direct costs i.e. prime cost is the aggregate of all such costs that can be traced back to products (cost units) or cost centers. Thus prime cost means sum of direct material costs, direct labour costs and direct expenses. Direct material costs include cost incurred on material […]
Understanding Throughput Accounting
The following article is relevant to all the subjects related to Cost Accounting especially with Throughput accounting as part of their syllabus. For example, ACCA F5. Though this article is written keeping ACCA F5 syllabus in consideration, it can be used by the students of other professional qualifications as well. ACCA F5 students, especially, can […]
