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Introduction
Introduction
The cost principle is an accounting principle that requires assets, liabilities, and equity investments to be recorded on financial records at their original cost.
According to the cost principle, transactions should be listed on financial records at historical cost – i.e. the original cash value at the time the asset was purchased – rather than the current market value. The cost principle is also known as the historical cost principle and the historical cost concept.
Objective(s):
At the end of the lesson the student should be able to:
1. identify the cost of production according to standard procedure;
2. compute the total cost of production; and
3. display patience in calculating the cost of production
Let's try this!
Let's try this!
keep in mind
keep in mind
The important fundamental Principles of Costing are as follows:
The important fundamental Principles of Costing are as follows:
1. Cost is always related to its cause:
It has been noticed that a cost is related as closely as possible to its cause. The figures of costs are collected and analyzed according to the nature and are allocated or apportioned on a basis of cause relationships.
2. Abnormal costs are charged in costing:
A cost incurred to meet the loss by fire, riot, theft or accident is called an abnormal cost. This cost is not charged to production as it has nothing to do with the production part. Therefore, the normal cost incidental to production or service is charged to cost center and not the abnormal ones.
3. Cost is charged after it is incurred:
If the cost has been incurred it is considered no cost and it cannot be charged to a cost center. For example – normal loss or wastage is to be borne by that unit only where loss has incurred. Such loss is not imposed on those units which are yet to pass or which are yet to come for production.
4. Past costs are not taken into consideration to future costs: It is generally the system that the cost of any period should be met in that period itself. If the costs of the past period are taken to a future period for recovery it would be a wrong step, because the future period costs will be unnecessarily over burdened with the load of the past costs and it may lead to misunderstanding.
Exception to this consideration is advertisement. Advertisement expenses are being treated as a deferred revenue expense; therefore, it can be charged during the period of benefit.
5. Keeping of accounts for cost is also based on Double entry principle:
The Cost Ledgers and other cost control accounts are kept on the double-entry principle. The same principle is also adopted in financial accounting. Costing no doubt requires a greater use of cost-sheets and cost statements for the purpose of cost ascertainment, cost control and guidance to management.
How to Calculate Mark-up Percentage
How to Calculate Mark-up Percentage
Mark-up is the difference between how much an item costs you, and how much you sell that item for it's your profit per item. Any person working in business or retail will find the skill of being able to calculate mark-up percentage very valuable.
Cost of production refers to the total cost incurred by a business to produce a specific quantity of a product or offer a service. Production costs may include things such as labor, raw materials, or consumable supplies. In economics, the cost of production is defined as the expenditures incurred to obtain the factors of production such as labor, land, and capital that are needed in the production process of a product.
Mark-up is the difference between how much an item costs you, and how much you sell that item for it's your profit per item. Any person working in business or retail will find the skill of being able to calculate mark-up percentage very valuable.
One of the greatest weapons against profit loss is to know your food costs. Food cost determines a restaurant's profitability. Production cost is important to the supply side of the market. Sellers base supply decisions on the cost of production. In that production cost generally increases as more of a good is production, the supply price also tends to rise with the quantity supplied.
assess whaT YOU LEARNED
assess whaT YOU LEARNED
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