✓ Replacement cost is the cost of an asset in the current market for the purpose of replacement. ✓ Replacement cost is a term referring to the amount of money a business must currently spend to replace an asset like a machine, a vehicle, or an equipment, at current market prices.
Imputed Costs:
Imputed costs are hypothetical or notional costs, not involving cash outlay computed only for the purpose of decision making.
Out-of-Pocket Cost:
This is the portion of the cost associated with an activity that involves cash payment to other parties, as opposed to costs which do not require any cash outlay, such as depreciation and certain allocated costs.
Controllable and Non-Controllable Costs:
Controllable Cost is that cost which is subject to direct control at some level of managerial supervision. Example: Raw material, Marketing
Non-controllable Cost is the cost which is not subject to control at any level of managerial supervision. Example: Insurance, Factory rent etc.
Cost Object, Cost Unit, Cost Center:
✓ Cost object is anything for which a cost is to be calculated or that makes you incur a cost. ✓ A cost unit is the measurement medium whereas a cost center refers to a subdivision, location, department, or other institution. ✓ The marketing department, Research & Development department are examples of cost centers. Meter, kilometer, gallon are examples of cost units.
What is Inventory?
Inventory is the goods or materials that a business holds for the goal of resale. Inventory is classified as a current asset on a company’s balance sheet.
Types of Inventories:
✓ Raw material ✓ Work in process ✓ Finished goods Format of Cost of Goods Manufactured and Sold Statement
ABC Company Cost of Goods Manufactured and Sold Statement For the year Ended on Dec 31,2024 Rs. Rs. Direct Material Opening Raw Material xxx Add: Purchases xxx Less: Purchases Return xxx Less: Purchase Discount xxx Direct material available for use xxx Less: Ending Raw Material xxx Direct Material used xxx Add: Direct Labor xxx Prime cost xxx Add: Factory Overhead xxx Total Manufacturing cost xxx Add: Opening Work in Process xxx Cost of Goods to be Manufactured xxx Less: Ending Work in process xxx Cost of Goods Manufactured xxx Add: Opening Finished Goods xxx Cost of Goods to be Sold xxx Less: Ending Finished Goods xxx Cost of Goods Sold xxx Format of Income Statement
ABC Company Income Statement For the year Ended on Dec 31,2024
Rs. Rs. Sales xxx Less: Cost of Goods Sold xxx Gross Margin xxx Less: Selling and Administrative expenses Selling expense xxx Administrative expense xxx xxx Net Operating Income xxx
