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32 Cards in this Set
- Front
- Back
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Costs are ... |
The amounts of money sacrificed for goods/services to bring a current or future cash flow to an organization. In accounting, costs are used up in production, or they expire. Costs that expire are the expenses. Product costs are split into direct and indirect costs. |
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Direct Costs are... |
Every cost that can be easily tracked to a product or service. |
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Indirect Costs are ... |
Every cost that cannot be easily checked/tracked to a product or service. Known as OVERHEAD. |
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Determining level of accuracy in costs estimates. |
Accuracy in cost estimation requires more work, so one must review the value of accuracy as more work means more time and hence, more money. |
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Overhead can be divided into ... |
Manufacturing expenses Administration expenses Selling expenses |
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A fixed cost |
does not increase or decrease when output varies. |
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A variable cost |
does increase or decrease with output. |
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A mixed cost |
has variable and fixed components. |
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Estimating overhead |
Look at last years overhead from the financial year and estimate based on this. Take last years activities and make an estimate of present years activities. Calculate predetermined overhead, as estimated annual overhead/ estimated annual activity Use this figure as cost in your calculations In the service industry, this figure is part of the hourly charge out rate. |
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Financial Accounting |
Produce financial statements that convey information to outside parties. |
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Management Accounting |
Provides information useful for the operation of the company |
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Cost Accounting |
The technical process by which expenses are allocated to products -Determine costs of products -Determine rates of labour |
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Expenditure to expenses (1/3) |
Everything starts from expenditures. That is, an amount of money paid for acquiring an asset or service. |
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Expenditure to expenses (2/3) |
A major constraint in costs measurement is the accounting period. The functions carried out by a company must be accomplished within a given period i.e. a year. |
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Expenditure to expenses (3/3) |
Companies generally provide several (sometimes a large amount of) different products. Each product consumes an amount of resources which may be different from one another. The issue is to put a value on all resources consumed by each product. |
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Expenses vs Expenditure |
Expenses are costs that expire, was used up, or was necessary to produce revenue during the accounting period. These are usually recorded on the income statement. Expenditures are single payments or disbursement. This may be the purchase of an asset, reduction of a liability or a distribution to owners. DISCUSS EXAMPLES |
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Costing methods |
Process Costing - Average costs to each unit of production Job-ordered Costing - Differentiate the direct costs per job/service to check profitiability of each job over time. Activity Based Costing (ABC) - % overhead assigned to a job. DO EXAMPLE |
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Depreciation |
is the expenses aspect to an expenditure that falls within the accounting period. This can occur due to physical deterioration or different tax deductions. |
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Draw the expenditure flow chart |
Expenditure - Expenses - Direct/indirect - Capacity/direct costs - Products etc |
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Project Management Cost ( 3 Main aspects) |
Is the value of human effort which is deployed to go in a given environment from situation A to B. In some industries cost is expressed in terms of hours for estimating costs of activities. 1) Direct human effort is the major cost element. 2) It is easy to go from estimated hours to cost. 3) Using hours eliminates the problem of currency value. It easily allows the ability to compare human efforts for projects made at different times, whereas, the monetary value has to use uni which changes with time. |
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The environment includes ... |
What is available and what is constraining, start and end points must be clearly defined. |
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Price is |
the result of monetary agreement between two parties when something is exchanged between them. Prices for goods are not fixed on the market placed. |
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When goods come at a fixed price, the company still controls |
-The level of quality -Quantities needed for doing something -Type of machines it will use -Efficiency of manufacturing processes -Levels of automation of the process and plant organization. |
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What is meant by 'costs are not just the addition of prices'? |
The seller cannot ignore its costs when they propose a price. Modern project management attempts to reduce the gap between costs and price. |
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Forecasting is ... |
never exact, hence, must set some hypothesis that define a scope of the estimate. Set a level of uncertainty for cost estimate. |
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What is a good estimate ? Discuss some societies that recommend costing procedures |
AFITEP (French) propose 4 levels. Preliminary Study 1-Identification (45% estimate) 2-Feasability (30% estimate) Realization 3-Design (15% estimate) 4-Development (<5% estimate) AACE (American) Propose 5 levels 5 - low level project definition (2% estimate) 4- Concept Study 3-Budget Authorization (10%-40%) 2-Bid Tender 1-Check estimate (1-4%) |
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Project life cycle major phases include |
Decision Phase Validation Phase Execution Phase |
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What occurs during the decision phase ? |
Time during which major decisions have to made about the project. Cost estimators must quickly assist the decision maker. Estimating the cost of various concepts, influence of uncertainties, materials etc. |
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What happens during the validation phase ? |
Manager has decided the technical process and a rough price. Cost estimator (CE) helps project manager to answer the question of 'How will we complete this project within the budget?'. PM develops the process in more detail, CE uses this to estimate a new budget. |
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What happens during the execution phase ? |
The role of CE changes again. The project continues and accumulates more information. The CE periodically decides if the project will remain inside the allocated budget, they do that by extrapolating cost and produce the estimate at completion (EAC). |
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Comparison of true cost with predicted cost determines ... and ... ... while knowing if you made the ... ... |
1- Credibility 2- Improve Predictions 3- Right Assumptions |
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Forecasting can only be completed by extrapolating from ... |
1-Databases 2-Use data analysis to extrapolate usually no linear patterns. 30% data 30% tools 40% judgement |
