Q3. Write short notes on the following:
- Responsibility center
- Explicit cost and implicit cost
- Product cost and period cost
- Cost control and cost reduction
- Post costing and continuous costing.
- Responsibility Center: When whole business is subdivided in too many departments, each u entrusted with a special task, there each such department or Center is called the responsibility center. Each such center is headed by a manager. Responsibility center can broadly be classified into three categories viz. Cost center, profit center and investment center. Center which have to incur cost and control it, is called cost center. Center which has the responsibility of generating and maximizing profit is called profit center. Center which has the responsibility of investment and profits both is called the investment center.
- Explicit Cost and Implicit Cost: Cost which are recorded in books and require cash payment are called explicit cost. Cost which does not involve any cash payment and not recorded in books of accounts is called implicit cost.
- Product Cost and Period Cost: Product cost is the costs which are
associated with the purchase and sale of goods. Generally these cost are directly related to product. for example, direct material, direct labor etc. Period cost are the costs, which are not assigned to the products but are charged as expenses against the revenue of the in which they are incurred. Generally these are fixed cost.
- Cost Control and Cost Reduction: cost control is a technique of controlling cost by executive action and performance. It may be temporary measure of controlling cost and it may all it may also be on the cost of quality. Cost reduction may be defined as the achievement of real and permanent reduction in the unit cost of goods manufactured or services rendered without impairing their suitability for the use intended or diminution in the quality of the product. Difference between cost control and cost reduction are as follows:
- Cost control is a temporary measure where as cost reduction is a permanent measure.
- Cost control may also be on the cost of quality of product where as in cost reduction, utility and quality of the goods or service remain unaffected.
- Post Costing and Continuous Costing: In Post costing, cost is determined after the year end with the help of actual recording of cost. In Continuous costing, cost is collected continuously as and when the activity take place so that as soon as a job is completed, the cost of completion would be known.