1)Define cost accounting?What is the classification of cost on the basis of decision making?

2)Define manufacturing and non manufacturing cost with an example.

3) Defining adjusting entries? What are the differences between accrual basis and cash basis accounting ?Why adjusting entries are need?

 

Answer:

1)Define cost accounting?

• The act of documenting, assessing, and reporting all of a company's costs (both variable and fixed) associated with the creation of a product is known as cost accounting. 
• This allows a company's management to make better financial decisions, implement efficiency, and accurately budget. The goal of cost accounting is to increase a company's net profit margins (how much profit each dollar of sales generates).
• Cost accounting is a type of managerial accounting that tries to capture a company's entire cost of production by measuring both variable and fixed costs, such as a leasing fee.
• The internal management team of a corporation uses cost accounting to determine all variable and constant expenses connected with the manufacturing process. It will first measure and record these expenses individually, then compare input costs to output results to aid in financial performance measurement and future business decisions.

What is the classification of cost on the basis of decision making?

For decision-making purposes of management, costs can be classified into various types such as

1.  Opportunity cost- The potential gains that an individual, investor, or organization misses out on when choosing one option over another are referred to as opportunity costs. The loss of a benefit that could have been obtained if the best alternative option had been chosen instead. If the utility or economic value lost is greater than the monetary payment or activities made, the opportunity cost is also included. Going on a walk, for example, may not have any financial costs attached to it. However, the opportunity lost is the time spent walking, which could have been employed for something else, such as generating money.
2. Marginal cost- The incremental costs spent when producing additional units of a good or service are referred to as marginal cost. The overall change in the cost of manufacturing more items is divided by the change in the quantity of things produced to arrive at this figure. All costs that fluctuate with the degree of production are included in the marginal cost. For instance, if a corporation wants to construct a new plant in order to produce more goods, the cost of doing so is a marginal cost.
3. Differential cost- The difference in the costs of two different decisions is referred to as differential cost. When a company is faced with multiple similar choices, it must choose one and discard the others. The concept can be particularly useful in step costing situations, where producing one additional unit of output may require a substantial additional cost.  When faced with such a predicament, corporate leaders must compare the expenses and profits of each alternative to choose the most viable solution.
4.  Relevant cost- Relevant cost is a phrase used in managerial accounting to indicate avoidable expenditures that occur only when specific business actions are made. The concept of relevant cost is utilized to minimize extraneous facts that could stymie decision-making. Relevant cost, for example, is used to decide whether a business unit should be sold or kept.
   Any expense that is important to a choice is referred to as "relevant costs." If the decision causes a change in cash flow, then the matter is relevant. Additional amounts that must be paid or a decrease in amounts that must be paid can cause a change in cash flow.
5. Replacement cost- The amount of money necessary to replace an existing asset with an equally valued or similar item at the current market price is referred to as replacement cost. In other words, it is the cost of obtaining a replacement asset for a company's current asset. An organization often chooses to replace its assets when the repair and maintenance costs increase beyond an acceptable level over a period of time.
6. Sunk cost- A sunk cost is a cost that has already been incurred and cannot be recovered in the future. Rent, marketing campaign expenses, and money spent on new equipment are all examples of sunk costs. A previous cost is another term for a sunk cost.
   Sunk expenses are viewed as bygone in economic decision-making and are not taken into account when deciding whether or not to continue an investment project.

2)Define manufacturing and non manufacturing cost with an example.

 Manufacturing costs;

The total cost of all resources utilized in the production of a product is known as the manufacturing cost. Direct materials cost, direct labor cost, and manufacturing overhead are the three types of production costs. It is an element in the entire cost of delivery.
The materials employed in the construction of a product are known as direct materials. The portion of the labor cost of the production process that is devoted to a unit of production is known as direct labor. Manufacturing overhead expenses are allocated to units of production using a variety of methods, including direct labor hours or machine hours incurred.

The following are some examples of costs that can be included in manufacturing overhead:  Quality assurance, industrial engineering, materials handling, factory management, and equipment maintenance personnel's salaries and remuneration

 Non manufacturing costs;

Nonmanufacturing overhead costs are expenses that a corporation incurs outside of its manufacturing operations

These are costs are not needed in transforming materials into finished goods. Non-manufacturing costs include: selling expenses and general expenses.

Selling and Distribution Expenses are two terms for the same thing. Advertising costs, salesperson salaries and commissions, storage costs, shipping and delivery charges, and customer support costs are all examples.

General and Administrative Expenses are two terms for the same thing. Executive wages, administrative salaries, accounting expenses, legal fees, research and development, and other costs associated with the organization's general administration are examples.

3) Defining adjusting entries? 

Adjusting entries are journal entries made at the end of an accounting cycle to update certain revenue and expense accounts and to make sure you comply with the matching principle. The matching principle states that expenses have to be matched to the accounting period in which the revenue paying for them is earned.

What are the differences between accrual basis and cash basis accounting ?

• The most significant distinction between accrual and cash basis accounting is the timing of revenue and expense recognition. The cash approach recognizes revenue and expenses more quickly, whereas the accrual method focuses on future revenue and expenses.
• Cash accounting records income and expenses as soon as the money enters or leaves your bank account, whereas accrual accounting records revenue and expenses as they are earned or incurred.
• Accrual accounting is more time-consuming and costly; payroll is one facet of accrual accounting that illustrates its complexity. Assume a corporation pays its employees for the previous month's work on the fifth of the month. Because your employees have already earned their pay for the month, you would have to account for the money you owe them at the end of the month, days before they are actually paid, if you used the accrual approach. As a result, a comprehensive list of charges that must be recorded as accumulated expenses emerges (or payables).
• While the accrual basis of accounting gives you a better long-term picture of your finances, the cash approach shows you how much money you have in your bank account. Because the accrual approach accounts for money that has yet to be received, this is the case.

Why adjusting entries are need?

Before financial statements can be created, adjusting entries are required to update all account balances. These adjustments are induced by the passage of time or tiny changes in account balances, rather than by physical events or transactions.

Under the accrual method, adjusting entries are a necessary aspect of correct accounting. After you've added all of the adjusting entries to a given accounting period, you can finish the financial statements for that period and use them to plan for your company's financial future.

You need to adjust for:

1. Accrued revenues:

It is possible that you will not receive the money you earned for products or services delivered right away. If you're a restaurant seller, for example, you might supply products first and send invoices later to your frequent customers. Revenues are earned during the accounting period in which the product is provided. However, it's possible that you won't get paid from your customer until the next accounting month. Adjusting entries are required in this scenario to precisely document what you earned during the accounting period.

2. Accrued expenses:               

All expenses incurred during an accounting period must be recorded. There will be times when you have accrued expenses but have not yet paid them out. In this case, adjusting entries are required. Adjusting entries for accumulated expenses can be beneficial in a variety of ways. For starters, it will keep you from wasting money that has been set aside for another purpose. Second, adjusting entries for accrued expenses can help you more accurately forecast for future needs.

References.

Jasinski, D., Meredith, J., & Kirwan, K. (2015). A comprehensive review of full cost accounting methods and their applicability to the automotive industry. Journal of Cleaner Production, 108, 1123-1139.

Wang, J., Wang, R., Zhu, Y., & Li, J. (2018). Life cycle assessment and environmental cost accounting of coal-fired power generation in China. Energy Policy, 115, 374-384.