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

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

Explicit costs

Explicit costs are costs that are really incurred by the entity. Opposite to explicit costs are implicit (opportunity) costs.

Differential costs

Differential cost is a difference in costs resulting from adopting different alternatives or costs in different time periods. They are opposites to sunk costs.

Financial accounting

The purpose of financial accounting is to present true and fair information about financial position, financial performance and cash-flow of the entity for the external stakeholders such as shareholders, investors, creditors or government. Financial accounting looks mainly into the history and is (m

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

Shut-down costs

Shut-down costs are unavoidable costs which will be incurred even if the production is shut down (e.g. rent which is the entity obliged to pay). 

Opportunity costs / Implicit costs

Opportunity cost (also called also implicit costs) is the highest possible amount that could be obtained if different alternative would have been adopted (e.g. rent income can be opportunity costs to using the factory premises for manufacturing). Opposite to implicit (opportunity) costs are explici

Replacement costs

Replacement cost is the cost which would need to be paid to buy the asset today. It is used mainly during asset replacement decisions.

Cost accounting

Cost accounting is a set of management accounting methods, techniques and procedures used mainly to determine actual or planned costs of cost objects (cost center, product, cost unit, department, process, activity). Cost accounting is not an exact discipline.  It involves a set of well tried-o

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