What is Opportunity cost and why is it a Relevant cost as well?
Opportunity costs are defined to be the economic value of the benefit sacrificed under one alternative to avail the benefit under another alternative course of action. For example, company have the option of manufacturing either alpha or beta. As company does not have enough resources to manufacture both of them so it will have to […]
What is the difference between Notional cost and Opportunity cost?
Notional costs and Opportunity costs are two important concepts in cost and management accounting as they have far reaching effects on decisions making process. But both are distinct and understanding the features of each type of cost is vital as it has important implications from decision making perspective. All opportunity costs included in the cost […]
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 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 meant by direct overheads? Does allocated overheads mean direct overheads?
First of all we need to understand the definitions of overheads, direct expenses, allocation and apportionment itself in order to explain the answer of this question. Overheads mean such costs and expenses that were incurred during the production process but it is impossible to identify or trace such costs back to a particular product or […]
What is conversion cost?
Conversion cost is the sum of all such costs that are incurred in converting one article into intended output. Mostly, coversion costs represents the costs of all such activities or resources that have been applied in converting raw materials to finished items. In mathematical or equation form conversion costs are forumalated as follows: Conversion cost […]
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 […]
