Question

Explain the different types of costs (variable, fixed, sunk, opportunity, direct, indirect).

Give 1-2 examples of each type of cost and explain how these costs will be applied during the manufacturing process.

How would an error in accounting affect your ability to glorify God?

Answer 1

Types of Costs :

(a) Fixed Cost :These are the costs which are incurred for a period, and which, within certain output and turnover limits, tend to be unaffected by fluctuations in the levels of activity (output or turnover). They do not tend to increase or decrease with the changes in output. For example, rent, insurance of factory building etc remain same for different levels of production.

(b) Variable Cost :These costs tend to vary with the volume of activity. Any increase in the activity results in an increase in the variable cost and vice- versa. For example, cost of direct labour, etc

(c) Sunk Cost:Historical costs incurred in the past are known as sunk costs. They play no role in decision making in the current period. For example, in the case of a decision relating to the replacement of a machine, the written down value of the existing machine is a sunk cost and therefore, not considered.

(d) Opportunity Cost : This cost refers to the value of sacrifice made or benefit of opportunity foregone in accepting an alternative course of action. For example, a firm financing its expansion plan by withdrawing money from its bank deposits. In such a case the loss of interest on the bank deposit is the opportunity cost for carrying out the expansion plan.

(e) Direct Cost : It includes all expenses other than direct material or direct labour which are specially incurred for a particular cost object and can be identified in an economically feasible way. For example, hire charges for some special machinery, cost of defective work.

(f) Indirect Cost : Expenses other than direct expenses are known as indirect expenses, that cannot be directly, conveniently and wholly allocated to cost centres. Factory rent and rates, insurance of plant and machinery, power, light,
heating, repairing, telephone etc., are some examples of indirect expenses.

Errors in accounting affect your ability to glorify God : Unintentional omission or commission of amounts and accounts in the process of recording the transactions are commonly known as errors. These various unintentional errors can be committed at the stage of collecting financial information/data on the basis of which financial statements are drawn or at the stage of recording this information. Also errors may occur as a result of mathematical mistakes, mistakes in applying accounting policies, misinterpretation of facts, or oversight. To check the arithmetic accuracy of the journal and ledger accounts, trial balance is prepared. If the trial balance does not tally, then it can be said that
there are errors in the accounts.

Some of these errors may affect the Trial
Balance and some of these do not have any impact on the Trial Balance although such errors may affect the determination of profit or loss, assets and liabilities of the business.

Conclusion : Since the errors in accounting eventually leads to mismatch in the trial balance which will have cumulative effect on the balance sheet and income statements so we can said that 'Errors in accounting affect your ability to glorify the god'.