Cost Accounting

This can be described as the process of accumulating, measuring, analyzing, interpreting and reporting cost information that is both useful and relevant to the internal and external stakeholders of a business entity. External stakeholders are those who have a vested financial interest in a business or company. For example banks (loans), financial houses (mortgages), investors (investments), etc. Internal stakeholders are the business or company directors, managers, division heads, etc.

One of the many benefits of cost accounting is that it turns data into information, knowledge and wisdom about a business entity’s operations that is useful for:

► measuring performance

► reducing or managing costs

► determining the fees or prices for goods and services

► deciding to authorize, modify or discontinue a program or activity

The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output. More formally, the marginal cost is the derivative of total production costs with respect to the level of output.

Marginal cost and average cost can differ greatly. For example, suppose it costs $1000 to produce 100 units and $1020 to produce 101 units. The average cost per unit is $10, but the marginal cost of the 101st unit is $20

The Econ Model applications Perfect Competition and Monopoly emphasize the roles of average cost and marginal cost curves. The short movie Derive a Supply Curve (40 seconds) shows an excerpt from the Perfect Competition presentation that derives a supply curve from profit maximizing behavior and a marginal cost curve.

Standard cost has been described as a predetermined cost, an estimated future cost, an expected cost, a budgeted unit cost, a forecast cost, or a "should be" cost. Standard costs are often a part of a manufacturer's annual profit plan and operating budgets. Standard costs will be established for the following year's direct materials, direct labor, and manufacturing overhead. If standard costs are used, there will be:

★ A standard cost for each unit of input (e.g., $30 per hour of direct labor)

★ A standard quantity of each input for each unit of output (e.g., 3 hours of labor for each product)

★ A standard cost for each unit of output (e.g., $30 X 3 hours = $90 of direct labor per product)

Relevant range refers to a limited span of volume or activity. To illustrate, let's assume that a manufacturer's monthly production volume is consistently between 10,000 and 13,000 units and between 20,000 and 25,000 machine hours. Within this range of activity it operates smoothly with the same amount of monthly fixed costs (say $200,000) for supervisors, rent, depreciation, etc. If the volume were to drop below this range, the company would reduce the number of supervisors, the space rented, etc. so that its total monthly fixed costs would be smaller. If the volume exceeds the range, the company would incur additional fixed costs for more supervisors, space, etc. Hence, this company's relevant range of activity is 10,000 to 13,000 units of product or 20,000 to 25,000 machine hours. It is only in this relevant range that the monthly fixed costs are $200,000.

A process in the industry where a wholesaler requests an amount that is the difference between the manufacturer's price to the wholesaler and the contract price to the resale customer.

The actual chargeback occurs when the wholesaler sells the manufacturer's product at contract price that is below wholesaler acquisition cost (WAC).

Especially evident in pharmaceutical industry.

In electronic commerce, a charge back is a reversal of a credit card transaction, which is usually initiated by the card issuer as requested by the cardholder. It may also be requested by the merchant. Charge backs usually occur due to fraudulent activity on the card (real or perceived), due to customer disputes, or from other authorization issues.

CMM is an internationally recognized standard for measuring the maturity of an organization's software development processes and has become the primary benchmark multinational corporations use to judge IT service providers ' abilities to deliver high quality software. Bleum is now one of only a few companies in China to be assessed SEI CMM Level 5.

The Capability Maturity Model (CMM) was developed under the guidance of the Software Engineering Institute (SEI) of Carnegie Mellon University in the U.S. It is organized into five maturity levels with SEI CMM Level 5 being the highest. By operating at this high a CMM level, customers ' benefit from Bleum's ability to consistently deliver high quality software on schedule, which ultimately results in a lower total cost of software ownership due to less rework and easier maintenance.

Marginal Cost (MC):

The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output. More formally, the marginal cost is the derivative of total production costs with respect to the level of output.

Marginal cost and average cost can differ greatly. For example, suppose it costs $1000 to produce 100 units and $1020 to produce 101 units. The average cost per unit is $10, but the marginal cost of the 101st unit is $20

The EconModel applications Perfect Competition and Monopoly emphasize the roles of average cost and marginal cost curves. The short movie Derive a Supply Curve (40 seconds) shows an excerpt from the Perfect Competition presentation that derives a supply curve from profit maximizing behavior and a marginal cost curve.