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Discussion on: Business Account Dilemma

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ncitujjwal

In general, people understand costs in terms of monetary prices or the amount of expenditure incurred on goods and services (Szilagyi, 2016). But accountant understand the cost as the sacrifice made in order to obtain a good or a service. In some cases the expenditure incurred on a good or service may be good indicator of the sacrifice made to obtain the same but there are situations where it is not. For example: - in some situations resources used do not have monetary value. - Some resources do have monetary value but they cannot be exactly measured. Costs can be classified in different ways depending on the purpose for which it is required. But in general costs can be classified broadly into fixed and variable costs, direct and indirect costs, and capital and recurrent costs. But in this case accountant suggest me on the basic of variable cost. In variable cost Variable costs are items of costs that vary directly and proportionately with production volume. If the total amount of costs increases as volume increases, the item is a variable cost. The percentage of cost increase or decrease that results in proportionate to the percentage change in the volume of production or the services provided. So in this case the production and cost directly proportional. As per accountant suggestion increasing the production means not only increase the product no only it also increase the other cost. Cost is the sacrifice made in order to obtain a good or service. There are mainly three elements of costs, such as material, labor and expenses. All indirect costs are called overheads. Costs can be classified into variable and fixed costs, direct and indirect costs, and capital and recurrent costs. Each classification has its own significance in management decisions (Wudhikarn, 2012). In manufacturing company have various types of cost these are cost of labor charge, material cost, store cost, human capital cost and other cost. So logically I think that it would not be a good solution for me so I personally say that, the accountant’s suggestion doesn’t make a sense. In the present day competitive economy, importance of product cost cannot be undermined. It is rather a key to success. Managers want product costs for guiding their decisions regarding pricing, inventory valuation and income determination. If we cannot measure product cost we cannot manage it.

References
Szilagyi, P. (2016). corporate executives buying and selling goods and services. Journal of Multinational Financial Management .

Wudhikarn, R. R. (2012). Improving Overall Equipment Cost Loss Adding Cost of Quality. International Journal of Production Research, 50(12) .