The Fundamentals of Cost Concepts and Management in Social Science

Cost Concepts

amounts are initially recorded in the accounting records at their cost or purchase price

1. What is a cost concept?

A cost concept is a basic principle or assumption that explains how a cost is measured, reported, and analyzed for decision-making purposes. It provides a framework to understand different cost components and helps organizations in making informed decisions about their business operations.

2. What is the difference between direct and indirect costs?

Direct costs are expenses that are easily traceable to a specific product or project. These costs are related to direct materials, direct labor, and direct expenses. On the other hand, indirect costs are expenses that cannot be directly attributed to a particular product or service. These costs include overheads and other indirect expenses that are shared by multiple products or projects.

3. What is the difference between fixed and variable costs?

Fixed costs are expenses that do not change with the change in production or sales volume. These costs include rent, salaries, and insurance premiums, among others. Variable costs, on the other hand, are expenses that vary proportionally with the production or sales volume. These costs include raw materials, packaging, and transaction fees, among others.

4. What is the difference between actual and budgeted costs?

Actual costs are the expenses that are actually incurred in the production or delivery of goods or services. These costs are measured and recorded retrospectively and are used to evaluate the performance of the organization. Budgeted costs, on the other hand, are the forecasted or projected expenses for a given period. These costs are planned in advance and are used to allocate resources and set performance targets.

5. What is the difference between historical and replacement costs?

Historical costs are the original expenses incurred to acquire an asset or produce a product. These costs are recorded in the accounting records and are used to determine the book value of the asset. Replacement costs, on the other hand, are the current or future expenses that would be incurred to acquire or replace an asset. These costs are not recorded in the accounting records but are used for decision-making purposes, such as determining the economic value of an asset.

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