Type of paper: Essay

Topic: Cost, Business, Actions, Activity, Overhead, Drivers, Sales, Organization

Pages: 3

Words: 825

Published: 2020/12/11

Operating expenses are those expenses incurred in relations to the operations of the business or operations relating to a device, component or a piece of equipment. There are business operating expenses that involve fixed cost and variable costs. There are also business overhead costs that costs of resources used for maintenance functions by the organization. Lastly, there is equipment operating costs.

Sales cost

Sales costs are the cost associated with the sale of a product. Also called cost of goods sold. They refer to all the carrying costs of goods exchanged during a trade. They include the cost of depreciation of an item purchased with the intention of reselling it again. The direct labor cost of workers involved in the production of the product sold is an inclusion of sales cost. Transport in and cost of goods returns called sales returns are all in this category.

Administrative cost

Administrative costs are costs incurred by an organization that has no direct relation to specific activities of the organization. They have no direct influence on the sales operations as well as the production activities.

Activity Categories

Cost drivers
Cost drivers are any factors that affect the cost of an activity. It is a unit of an activity that can bring about change in cost incurred in a business. How individual items of value are traced back to business grouping. Tracing back items at the preliminary stage is very easy. Since costs will be noted depending on their rates to indicate what activities were in use as well as the cost drivers that were in used? If the allocation is units per hour, then the activity group will be the total manufacturing overhead cost. The method is the distribution of activities
The second method is the allocation by-products. The number of units produced in this scenario plays a crucial role in this stage. The accountant will use the number of units produced in an operation and compare it with a cost driver such as cost of direct labor.

Importance of using primary stage cost drivers

Preliminary and main cost drivers are those factors that can change the cost incurred in an activity; the cost drivers are at the initial phases of the activities, and if done well they can be fruitful. They form the foundation of operation for the activity.

Implementing activity-based accounting

There are simple steps that a manager can take to implement the activity based costing system into their operations:
First, the manager must look at his organization’s overhead cost. It is a system used by large firms. There must be significant amounts involved for the system to make any sense. Second is the identification of the significant overhead costs. Identification of overhead costs will lessen the task at hand to a small figure will give inaccurate measures. The third stage is identification of the principle activities that consumed the overhead costs. The final trace all the activities in the product. Activity based costing is a simple process that give more accurate measures. It only involves a few steps. It is an efficient system I large firms that use large chunks of many.

References

Foster, G. (2005). Strategic Cost Management. London: Oxford University Press.
Horngen, C. (2009). Cost Accounting; a managerial emphasis. New York: Manhattan Publishers.
Porter, M. (2007). Competitive advantage. Mason (OH: Thomson/South-Western.

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Glasier Health Products Essay. Free Essay Examples - WePapers.com. https://www.wepapers.com/samples/glasier-health-products-essay/. Published Dec 11, 2020. Accessed June 20, 2024.
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