To satisfy the basic needs of life everyone wants to gain profit in the business which they are doing and for this right way of accounting is essential. Accounting can be classified into three categories:
Cost accounting is a branch which deals with the classification, recording and reporting of current as well as previous costs. By cost accounting management can make decisions of controlling the costs to improve the profitability in the business.
Following cost elements help in reducing company's costs and increase in their profitability:
By using cheap and high quality raw material the company's cost can be reduced and gain maximum profit.
By reducing manual labor the company's cost can also be reduced.
By not doing so much expenses the company can gain profit and the cost can also be reduced.
Cost accounting standards means the measurement, assignment and allocation of costs to the government contracts. Various cost accounting standards are described below:
Headquarters expenses should be given on the basis of supporting and receiving activities. Mostly these expenses are given when the activities are directly reported to the office. The expenses which are not directly given are grouped in expense pools.
The expense pools can be listed as follows:
Residual expenses are the expenses which are not directly given by expense pool and residual expenses the result of not identifying with specific activities or segments. Residual expenses expenses are given by means of base representative of the segments and the base is considered by the personnel of the organization and the capital invested in the organization.
Residual expenses given to any segments are based on the absence of the following things:
Unallowable costs cannot be charged as reimbursable expense under any law.
Cost accounting period is from October 1 to September 30 fiscal year.
Compensated personal absence costs are always given directly to the employees for whom they are entitled.
Depreciation of tangible capital assets costs can be charged as direct cost when they are used for the same purpose.
The cost of material which provides the direct benefit will give to the cost objective otherwise it will give to the indirect cost pool.
As defense capital fund (DWCF) is not responsible for the pension cost so this standard should not be applied.
Adjustment and allocation of pension cost standard is also not applied.
Accounting for the cost of deferred compensation is done when the future payment is measured with reasonable accuracy.
Instead of charging the customers when insurance loss occurs they charge on the causes responsible for that purpose.
Until the department of defense provides the loans for the construction the money used in the construction shall not be capitalized as its part.
Pre-established rates can be used for direct and indirect costs.
The expenditure done on all these costs in one accounting cost period shall not be the same in the other cost accounting period.
While designing the cost accounting system following objectives should be covered:
Secondly, cost accounting system should provide the following: