Bookkeeper Naples FL Cost in Accounting

There are typically 4 approaches to cost accounting: standardized cost accounting, activity-based costing, throughput accounting and marginal costing. Each approach has control variables against over- or underestimations and was established over time as modern company processes and expenditures became more complex. Cost correction is done through a variance analysis, which compares actual costs to standard costs for components such as material and labor costs. Marginal Cost is the cost a company incurs when producing one more good. Suppose we’re producing two goods, and we would like to know how much costs would increase if we increase production to three goods says Bookkeeper Naples FL. This difference is the marginal cost of going from two to three. The purpose of cost accounting is some different with managerial accounting. It tracks cost associated with a product and also ancillary cost specifically. Cost accounting sets out cost in fixed and variable which helps in decision making process for the managers.

Find an Expert in Cost Accounting

Retaining the service of a cost accounting expert is one option to help assess actual costs that will allow you to make profitable business decisions. Find either a certified public accountant or certified bookkeeper through referral services or associations. As with any professional whose services you retain, be sure to get references to guarantee competency explains Bookkeeper Naples FL. Take advantage of online tutorials and seminars to educate you and your staff about cost accounting methods. Then decide which methods work well with your business accounting needs. Good cost accounting software provides you with alternative methodologies. Multiple options offer flexibility and can maximize profitability. Variance analysis is a form of cost accounting that determines the difference between actual costs and either standard costs, meaning how much comparable organizations spend on the same processes, or projected costs. The level of variance between actual costs and standard costs measures an organization’s efficiency. In other words, it measures how much they get out of a dollar compared to the norm.

Fixed & Variable Costs

By and large, fixed costs can be closely estimated at the beginning of the year and projected well for the next 12 months. For instance, you know your rent on the manufacturing building is $10,000 per month. You may know of, or expect, a rent increase in April to $11,000 per month. As a result, your fixed cost for rent will be $129,000 for the year (3 months at $10,000 plus 9 months at $11,000). Fixed costs include things like rent, depreciation, licenses, interest payments, some taxes, and indirect labor. Variable costs are those that depend on your production level. As the production volume goes up, the variable costs go up as well. If I make toy wagons, I have to purchase one wagon body, two axles, and four tires per wagon. If a wagon body cost $3 and I need enough to make six wagons, my wagon body costs will be $18. However, if I need to make 20 wagons, my wagon body costs will be $60. I can estimate variable costs at the beginning of the year, but my estimate will not be as precise as was my estimate of fixed costs. Variable costs include cost of materials used in manufacturing, certain utilities, some taxes and fees, and direct labor states Bookkeeper Naples FL. Is This Cost Fixed or Variable? Some costs the business incurs, such as labor will have to be split between fixed costs and variable costs. The wages you pay production labor, called direct labor, is a variable cost. It is tied to how many units you produce. Other labor costs, such as the salaries you pay the accounting department, are fixed costs. These indirect labor costs are not tied directly to production levels. If your production increases from 10 widgets per month to 15 widgets per month it is unlikely you would hire an additional accounting clerk. Utilities are another cost that is split between fixed and variable costs. Your phone bill, for instance, probably won’t change much as production increases or decreases. However, the demand for electrical power, and the cost of it, will increase as production lines run longer and lights stay on further into the night because of increased production.

Is That All My Income?

When someone pays you that is income. Income is usually related to production levels, but is not tied to it directly. You may produce more or less than you sell. For instance, if you have 100 widgets in the warehouse when you receive an order for 150, you only have to produce 50 additional widgets. If you make widgets for skis, you may make 20 widget every month during the summer even though you don’t sell any, just so you have enough in the warehouse when winter arrives. So income is when you actually get paid, not when you make the product you are going to sell expresses Bookkeeper Naples FL. Total income is just the total of all your payments received during the year. Any sales beyond the break-even point are profit. In the final example above (fixed cost $500, variable cost $15 each, income $25 each) your break-even point is 50 units. If you produce 50 units and sell 50 units you will break even. Your costs will equal your income. You will have a profit of $0. If you sell less than 50, you will have a loss. If you sell more than 50 you will have a profit. For example, if you sell 70 units your fixed costs are $500 and your variable costs are $1050 ($15 * 70), so your total costs are $1,550. Your income is $1,750 ($25 * 70) and your profit is $200 ($1,750 – $1,550).