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External (primary) costs

External (primary) costs arise from outside the company and include for example cost of raw materials and power consumption bought externally or wages and salaries. The opposite of external costs are costs internal (secondary).   More about other possible cost divisions here.

Allocation base (Absorption rate)

Allocation base (or absorption rate) is a monetary or non-monetary parameter, according to which is allocated something that cannot be attributed directly.  It is often used to allocate indirect costs (overheads) to the cost object which is typically a specific product or service. Allocation b

Costing method by division using relative numbers

Costing method by division using relative numbers is costing method, or rather approach to costing, under which are indirect costs (overheads) allocated to the product by using a weight factor that is derived from the feature in which the products differ (e.g. size, time necessary for the production

Apportionment of common costs to joint products

During the production process can be manufactured at once two or more products. If they are of similar economic importance and none of them is significantly more important than the other, they are so called joint products. But as the production or its part is common, joint costs are incurred and it

Difference between joint and main/by products in common production

In common production process are simultaneously processed two (or more) products. If both products are of similar economic importance, they are JOINT PRODUCTS. But if they are not, one is considered to be MAIN and the second BY-PRODUCT.   And what are the factors to take into account to distin

Progressive costs

Progressive (over-proportionate) costs are costs that increase more quickly when the production level increases. They are most often related to variable costs which can be linear (proportionate), progressive or degressive. If they are progressive and production increases, unit costs increase. C

Difference between direct and indirect costs, their division and accounting

According to the traceability to cost object (usually a specific type of product or service) the costs can be divided into DIRECT COSTS (PRIME COSTS) and INDIRECT COSTS (OVERHEADS). The reason for such classification is especially appropriate inventory (and possibly other assets as well) valuation.

Costing by simple division

Costing by simple division is costing method, or rather approach to costing, under which are indirect costs (overheads) allocated to the product by their division, i.e. by the formula: indirect costs / number of units. The method is applicable only if a single product is produced.   When se

Common (pre-separation) costs in joint and by product costing

Joint costs (also known as common or pre-separation costs) are costs common to the production process during which are simultaneously processed two or more different products. These costs can be assigned to the individual products by using a specific costing methods (see below).   These are

Treatment of joint (common) costs in case of by-products

During the production process can be manufactured at once two or more products. If they are NOT of similar economic importance, then the more important product is called MAIN PRODUCT and the less important product BY-PRODUCT. As by-product´s value is usually negligible, net realizable value

Degressive costs

Degressive (under-proportionate) costs are costs that increase more slowly when the production level increase. They are most often related to variable costs which can be linear (proportionate), progressive or degressive. If they are degressive and production increases, unit costs decrease. Cost degr

Inventory turnover ratio / Stock turnover ratio

Inventory turnover ratio (Stock turnover ratio) is one of the indicators of activity,  which shows how many times during the period (year) is a unit of inventories converted into revenues (i.e. is sold).   Calculation formula   Inventories are often the average from the beg

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