What is the specific cost method?
Specific Cost Method Definition: Under this method specific cost of materials issued is charged to production. When materials are purchased for a particular job, they should be charged to that particular job at their actual cost. This method is suitable for job order industries which carry out individual jobs or contracts against specific orders.
What is specific unit cost?
Specific unit cost is a cost flow method that can be used when each unit of inventory is identifiable. Companies typically use specific unit cost when they sell a small number of expensive items, such as jewelry or automobiles.
What is the difference between simple and specific prime cost?
The simple prime cost method averages labor costs across all menu items to help determine the selling price based on prime cost percentage goals. The specific prime cost method places menu items into two categories: extensive preparation and non-extensive preparation.
What are direct costs?
Direct costs are costs that can be attributed to a specific product or service, and they do not need to be allocated to the specific cost object. It is because the organization knows what expenses go to the specific departments that generate profits and the costs incurred in producing specific products or services
What do you mean by specific cost?
Specific Cost refers to the cost which is associated with the source of capital. Eg. Cost of equity. Computing specific cost of capital involves summing up of all forms of capital listed below. Cost of debt.
What is specific cost and composite cost?
Specific Costs and Composite Cost: Specific costs refer to the cost of a specific source of capital such as equity shares, Preference shares, debentures, retained earnings etc. Composite cost of capital refers to the combined cost of various sources of finance. In other words, it is a weighted average cost of capital.
What are the 4 types of cost?
Costs are broadly classified into four types: fixed cost, variable cost, direct cost, and indirect cost.
What are the 3 types of cost?
These expenses include:Variable costs: This type of expense is one that varies depending on the company's needs and usage during the production process. ... Fixed costs: Fixed costs are expenses that don't change despite the level of production. ... Direct costs: These costs are directly related to manufacturing a product.More items...
What is specific cost of capital?
Specific Capital Cost: The cost of each component of capital is known as specific Capital Costs. Companies raise capital from different sources such as equity, debentures, loan etc. It is the cost of equity capital, cost of debentures, etc., individually.
What is composite cost?
Composite cost of capital is a company's cost to finance its business, determined by and also referred to as "weighted average cost of capital" or WACC. Composite cost of capital is calculated by multiplying the cost of each capital component by its proportional weight.
What are the 2 main type of cost?
The two basic types of costs incurred by businesses are fixed and variable. Fixed costs do not vary with output, while variable costs do. Fixed costs are sometimes called overhead costs.
What are the 5 types of cost?
The 5 costs they cover are:Direct cost.Indirect cost.Fixed cost.Variable cost.Sunk cost.
What are the 10 types of cost?
Types of CostsOpportunity costs.Explicit costs.Implicit costs.Accounting costs.Economic costs.Business costs.Full costs.Fixed costs.More items...
What are 3 elements of cost?
Tip. The Elements of Cost are the three types of product costs (labor, materials and overhead) and period costs.
What is cost and its types?
Difference between fixed cost and variable costFixed CostVariable Cost2. Fixed cost is total fixed but per unit is variable.2. Variable cost is the total variable but the unit is fixed.3. Fixed cost total amount within a relevant output range.3. Variable of the total amount in direct proportion to value.4 more rows
What are various types of costs?
Types of Costs1) Fixed costs. Costs that are unaffected by the quantity of demand. ... 2) Variable costs. Costs associated with a company's output level. ... 3) Operating costs. ... 4) Direct costs. ... 5) Indirect costs. ... 1) Standard Costing. ... 2) Activity-Based Costing. ... 3) Lean Accounting.More items...•
What is explicit and implicit cost?
Explicit costs are out-of-pocket costs for a firm—for example, payments for wages and salaries, rent, or materials. Implicit costs are the opportunity cost of resources already owned by the firm and used in business—for example, expanding a factory onto land already owned.
What is the difference between marginal cost and average cost?
Marginal cost is the change in total cost when another unit is produced; average cost is the total cost divided by the number of goods produced.
What is the marginal cost of capital?
The marginal cost of capital is the cost of raising an additional dollar of a fund by way of equity, debt, etc. It is the combined rate of return.
What are the various methods of computing cost of capital?
To determine cost of capital, business leaders, accounting departments, and investors must consider three factors: cost of debt, cost of equity, and weighted average cost of capital (WACC).
What is specific costing?
Under specific costing, an accountant is able to trace the actual order batch and the actual cost paid for each unit of inventory. As a result, specific unit costing under the periodic inventory system values inventory the same way a perpetual inventory system would. Specific costing directly matches cost of goods sold to current revenues, and prevents manipulating the accounting statements. Despite this, specific costing may not be practical for a company that sells many units of inexpensive, homogenous, and unidentifiable goods.
When to use specific unit cost?
Specific unit cost is a cost flow method that can be used when each unit of inventory is identifiable. Companies typically use specific unit cost when they sell a small number of expensive items, such as jewelry or automobiles. However, with the advent of computer inventory systems and better inventory tracking tools such as RFID tags, specific unit costing is becoming more popular.
What is the specific prime cost method?
The specific prime cost method separates menu items into two categories: extensive preparation vs. non-extensive preparation. Total costs are distributed to each category to more accurately reflect the cost differences of various menu items. The cost distribution in each category is then used to calculate multipliers that will determine the appropriate final menu price. The following table shows a summary of how the costs are attributed and how these industry multiplier values have been obtained.
What is objective pricing?
Objective pricing methods are based off of real operational data regarding food and labor costs, and allow for more accurate pricing of menu items. Two objective pricing methods that can be used to help set menu ...
How to find the selling price of an item?
The final step is to determine the selling price for each item. This is found by taking the prime cost per item and dividing it by the target prime cost percentage (60% in this example).
What is prime cost in restaurant?
The prime cost target range in the restaurant industry is around 60-65%. This means that roughly two thirds of total operating costs can be attributed to food, beverage, and labor costs.
How to find the average labor cost per guest?
This can be found by taking the labor cost of the operation and dividing it by the expected number of guests over a given time period.
What is a cost object?
The cost object can be a brand, project, product line, division/department, or a branch of the company. The company should also determine the cost allocation base, which is the basis that it uses to allocate the costs to cost objects.
What is direct cost?
Direct costs are costs that can be attributed to a specific product or service, and they do not need to be allocated to the specific cost object. It is because the organization knows what expenses go to the specific departments that generate profits and the costs incurred in producing specific products or services#N#Products and Services A product is a tangible item that is put on the market for acquisition, attention, or consumption while a service is an intangible item, which arises from#N#. For example, the salaries paid to factory workers assigned to a specific division is known and does not need to be allocated again to that division.
What happens when costs are allocated in the right way?
When costs are allocated in the right way, the business is able to trace the specific cost objects that are making profits or losses for the company. If costs are allocated to the wrong cost objects, the company may be assigning resources to cost objects that do not yield as much profits as expected.
What is cost allocation?
Cost allocation provides the management with important data about cost utilization that they can use in making decisions. It shows the cost objects that take up most of the costs and helps determine if the departments or products are profitable enough to justify the costs allocated. For unprofitable cost objects, the company’s management can cut the costs allocated and divert the money to other more profitable cost objects.
What is overhead cost?
Overhead costs. Overhead costs are indirect costs that are not part of manufacturing costs. They are not related to the labor or material costs that are incurred in the production of goods or services. They support the production or selling processes of the goods or services.
Why is it important to identify cost objects?
Identifying specific cost objects is important because they are the drivers of the business, and decisions are made with them in mind.
Why is cost allocation important?
Cost allocation helps determine if specific departments are profitable or not. If the cost object is not profitable, the company can evaluate the performance of the staff members to determine if a decline in productivity is the cause of the non-profitability of the cost objects.
How it works
You select the exact shares you want us to sell or transfer. The transaction will appear on your statement as SpecID.
Why you might prefer the specific identification method
This method provides the most flexibility for tax planning strategies.
A few things to consider
This method requires more effort: Generally, you must specify before the setlement date the shares to be sold or transferred and Vanguard must confirm those specifications back to you within a reasonable time.
Select a cost basis method
This information isn't intended to be tax advice and can't be used to avoid any tax penalties. We recommend you consult a tax advisor.
What is fixed cost?
Fixed costs are costs that don't vary depending on the level of production. These are usually things like the mortgage or lease payment on a building or a piece of equipment that is depreciated at a fixed monthly rate. An increase or decrease in production levels would cause no change in these costs.
What is operating cost?
Operating costs are costs associated with the day-to-day operations of a business. These costs can be either fixed or variable depending on the unique situation.
What Is Cost Accounting?
Cost accounting is a form of managerial accounting that aims to capture a company's total cost of production by assessing the variable costs of each step of production as well as fixed costs, such as a lease expense .
What types of costs go into cost accounting?
These will vary from industry to industry and firm to firm, however certain cost categories will typically be included (some of which may overlap), such as: direct costs; indirect costs; variable costs; fixed costs; and operating costs.
What are some advantages of cost accounting?
Since cost accounting methods are developed by and tailored to a specific firm, they are highly customizable and adaptable. Managers appreciate cost accounting because it can be adapted, tinkered with, and implemented according to the changing needs of the business. Unlike the Financial Accounting Standards Board (FASB)-driven financial accounting, cost accounting need only concern itself with insider eyes and internal purposes. Management can analyze information based on criteria that it specifically values, which guides how prices are set, resources are distributed, capital is raised, and risks are assumed.
What is the difference between financial accounting and cost accounting?
One key difference between cost accounting and financial accounting is that, while in financial accounting the cost is classified depending on the type of transaction, cost accounting classifies costs according to the information needs of the management.
Why do managers appreciate cost accounting?
Managers appreciate cost accounting because it can be adapted, tinkered with, and implemented according to the changing needs of the business. Unlike the Financial Accounting Standards Board (FASB)-driven financial accounting, cost accounting need only concern itself with insider eyes and internal purposes.
What is specific identification method?
The specific identification method relates to inventory valuation, specifically keeping track of each specific item in inventory and assigning costs individually instead of grouping items together.
What is business inventories?
, specifically keeping track of each specific item in inventory and assigning cost individually instead of grouping items together – the manner of calculation that is typically done in the first in, first out (FIFO) and last in, first out (LIFO) methods.
What are the benefits of the inventory method?
One benefit of the method is a much higher degree of accuracy when it comes to the actual numbers of items in inventory and then, of course, a higher degree of accuracy when it comes to the numbers of dollars in earned income or profit, as well as any lost revenue if items are damaged, lost, or returned. The chances of losing or misplacing ...
What are the drawbacks of specific identification?
The primary drawback to the specific identification method is the fact that its use requires a definitive ability to easily and consistently identify all the individual items within a company’s inventory, track their cost, and be able to produce them upon sale or the promise of sale.