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Imputed Cost
The imputed costs are such hypothetical costs for
which the actual cash outlay does not take place
but for the purpose of decision making it is taken
Sunk Cost
The cost which has taken place in the past
and alternative decision will not affect the
cost, such costs are called sunk or historical
cost. This type of cost cannot be changed by
any decision in future. Examples of sunk costs
are the book values of existing assets, such as
plant and machineries, inventory etc.
Relevant Cost
A relevant cost is that cost which is relevant
for decision making. It is a future cost which
differs under different options or alternatives.
Fixed, variable and Mixed costs
Adams Ltd. has five manufacturing departments. The
following operating and cost information for the two most
recent months of activities are given below:
May 2005 June 2005
Units produced 10000 10000
Cost in each department
Deptt.A Rs.10000 Rs.10000
Deptt.B 25000 50000
Deptt.C 35000 45000
Deptt.D 18000 64000
Deptt.E 22000 44000
Identify whether the cost in each department is fixed,
variable, or mixed.
Relevant, Differential cost
Jackson Farm Tools has two options for
repairing its office space, which received
extensive wind damage in a recent storm.
option 1 option 2
Cost 1 Rs.8000 Rs. 8000
Cost 2 6420 2500
Cost 3 16000 0
Cost 4 20400 40800
Total cost 50820 51300
Illustrations
Ill.1. Following data has been extracted from the records of
a manufacturing company, whose operations are varying
from month to month:
level of activity Maximum Minimum
machine hours 800000
300000
Manufacturing exp.(Rs. Lakhs) 52 32
Determine the fixed and variable components of
manufacturing overheads and hence compute the total
manufacturing overhead for an activity level of 500000
machine hours.
ILL.2. B&Co. has recorded the following data in the two most
recent periods:
Volume of production(units) 800 1200
Total cost of production (Rs.) 14,600
19,400