Question

Write a brief essay on “costing approach” adopted by various organizations?
Write definitions of each types, and use proper examples to substantiate your answer?
a. fixed cost
b. variable cost
c. mixed cost
d. step-wise cost
e. curvilinear cost

Analyze the advantages and disadvantages of credit. Highlight the cost and financial consequences of debt?

Answer 1

Costing approach is the method of costing adopted by the organisation for the the value of cost identification it varies from the organisation to the organisation like manufacturers constructors service providers and other form of business providers

1. Unit Costing – If production is made in different grades, costs are ascertained grade wise. Per unit cost is calculated on the basis of units produced. This method is applicable to steel production bricks, mines and flour mills etc.

2. Job Costing – This method is applicable where work is undertaken to customers. This method is used in repair shops printing press and interior decoration etc.

3. Contract Costing – Unit cost in a contract is of a long duration and it may continue for more than a year. It is most suitable in roads, bridge, shop building etc.

4. Process Costing – The method is used in mass production industries. The raw material passes through a number of processes up to a completion stage. The finished product of one process passed through a number of process for the next process. This method is used in chemical works, sugar mills etc.

5. Service Costing – This method is used where services are provided such as hotels, cinemas, hospitals, transport, electricity companies etc.

6. Composite Costing – This method is used where a number of components are manufactured separately and then assembled in a final product such as in Scooters, Cars, Air Conditioners etc.

7. Batch Costing – The cost of a batch is ascertained and each batch is a cost unit. This method is used in readymade garments, shoes, tyres and tubes etc

8. Operation Costing – This system is followed where number of operations are involved. It provides minute analysis of costs and ensures greater accuracy and better control

Fixed Cost: Fixed cost is the cost which does not vary with the change in the volume of activity in tne costs are not affected by temporary fluctuation in activity of an enterprise. These cre also known as period costs. Example: Rent, Depreciation...etc.

Variable Cost: Variable cost is the cost of elements which tends to directly vary with the volume of activity. Variable cost has two parts (i) Variable direct cost (i) Variable indirect costs. Variable indirect costs are formed as variable overheads. Example: Direct labour. Outward Freightf.etc.

Mixed Costs: Mixed costs contain both fixed and variable elements. They are partly affected by fluctuation in the level of activity. These are partly fixed and partly variable costs and vice versa. Example: Factory supervision, Maintenance.etc.

A step-wise cost, also called a stair-step cost, is an expense that stays constant over a range of production and changes in lump sums as production volumes increase and decrease. In other words, these costs remain fixed over a relevant range of production volume. When the production volume changes outside of the relevant range, the costs increase or decrease in a step fashion.

A curvilinear cost, also called a nonlinear cost, is an expense that increases at an inconsistent rate as production volume increases. In other words, this is an irregular cost that increases at different rates as total output increases.

The Pros of taking credit

• Maintain Ownership of Your Business
• Tax Deductions
• Maintain cash flows

The Cons of taking credit

• Paying Back the Debt
• High Interest Rates
• The Effect on Your Credit Rating
• Cash Flow Difficulties

credit in answer cash flow of the business but decreases the credibility and confidence of the business paying the interest and other charges to the the financier decrease the amount of profit margin and other cash flows to the business it will soon lead to the the dilution of the business