Cost Accounting - Basics
Khurram Ali Mubasher, MSc, ACMA, CGMA, CPA
Shaping future leaders in Accounting & Finance | 12+ Years Corporate Experience | Associate CIMA & CPA | Educator | Sentiment Analysis Enthusiast
Cost Accounting - Cost Basics
Zulnoorain and her Lemonade Stand
Once upon a time, there was a little girl named Zulnoorain who wanted to start a lemonade stand to earn some money. Her parents gave her a list of things she needed to buy, such as lemons, sugar, cups, and a table.
Zulnoorain learned that there are different types of costs that she needs to consider when running her lemonade stand. For example, direct costs are things like lemons and sugar that she needs to buy directly for her lemonade stand.
Indirect costs are things that she needs to make her lemonade stand work but are not directly related to the lemonade itself, such as a permit or advertising.
Product costs are all the costs that are related to making and selling Zulnoorain's lemonade, like the cost of lemons, sugar, and cups. These costs are important because they help her figure out how much she needs to charge for her lemonade to make a profit.
Period costs are all the other costs that are not directly related to making or selling her lemonade. For example, if Zulnoorain buys a tablecloth to make her stand look nicer, that's a period cost.
Variable costs are costs that change depending on how much lemonade Zulnoorain sells. For example, if she sells more lemonade, she'll need to buy more lemons and sugar. These costs are called variable costs because they vary with the amount of lemonade she sells.
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Fixed costs, on the other hand, are costs that don't change no matter how much lemonade Zulnoorain sells. For example, if she needs to pay a fee to rent a spot for her stand, that's a fixed cost.
Differential costs are the difference between two options. For example, if Zulnoorain is trying to decide between using fresh lemons or bottled lemon juice for her lemonade, she'll need to figure out the differential cost between the two options.
Sunk costs are costs that have already been spent and can't be recovered. For example, if Zulnoorain spends money on a new lemon juicer, but then decides not to use it, that's a sunk cost.
Opportunity cost is the cost of choosing one option over another. For example, if Zulnoorain decides to spend her afternoon selling lemonade instead of playing with her friends, the opportunity cost is the fun she could have had with her friends.
All of these costs are important for Zulnoorain to consider when she's making decisions about her lemonade stand. She needs to think about how much she's spending on ingredients, advertising, and other costs, so she can make sure she's making a profit. She also needs to think about the opportunity cost of spending her time selling lemonade instead of doing something else.
When it comes to financial reporting and costing, Zulnoorain will need to keep track of all of her costs so she can figure out how much she's making and if she's making a profit. This information will help her make better decisions about her lemonade stand and maybe even help her decide if she wants to start a bigger business one day.
BBA | Iqra University | Finance HR | Digital Marketing | Accounting
1 年1. Eg: books, furniture, pencils, utility bills, are the direct cost of the class room A. Zulnoorain should track her costs to see if she's making money and to control her business finances.
Attended Iqra University (Official)
1 年Direct costs for a classroom include Instructional materials like text books, copies , etc Technology like lights, projecter, fan, Air conditioner, etc Desks chairs tables storage racks Salaries for teaching and support staff A. She needs to keep track of her costs so that she can mainly find out if she is profitable or not. Another reason for her to keep track of her costs is she can fincial control of her business
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2 年Table Chair Board Teacher Fan Light Blackboard A. Because zulnoorain needs to keep track of her expenses in order to make profit
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2 年Answer 1: (Interpreted this question as “direct cost to build a physical classrom”) direct costs are expenses that are incurred to produce a product or service, such as raw materials, labor, and other expenses that are directly related to the production of the final product. In such case, some of them are as follows: - Place (that depends wether you own it or rent it) - Teacher - Electricity - Equipment (board, projector, marker, speech dice, seats, tables, fan etc) - infrastructure/ operations - and many more (cant sum it up all here) Answer no 2: Zulnoorain must maintain accurate records of her costs to determine her revenue and profitability. This financial information will assist her in making informed decisions regarding her lemonade stand's performance and growth potential, as well as in evaluating the feasibility of expanding her business in the future. - Yawar.
student at iqra university
2 年Direct cost for classroom are Board Chairs Marker Desk Fan/Ac Light. And zulnoorain need to have track of her costs to make sure that how much she is making profit from thr business.