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4. Short-term Decision Making

  Short-term Decision Making Overview : Short-term decision-making involves using cost data to make immediate business decisions, like pricing or product mix choices. 4.1 Selling Price Decisions Considerations : Market demand, competitor prices, and cost structure. Solved Example : Problem : A company’s unit cost is $15, and it aims for a 20% profit margin. Calculate the selling price. Solution : Selling Price = $15 / (1 - 0.20) = $18.75 4.2 Make or Buy Decisions Considerations : Compare in-house production costs with purchase costs. Solved Example : Problem : Producing a part in-house costs $6 per unit, while buying it from a supplier costs $5. Should the company make or buy if it needs 1,000 units? Solution : Total In-house Cost = $6 * 1,000 = $6,000 Total Purchase Cost = $5 * 1,000 = $5,000 Decision: Buy from supplier. 4.3 Sales Mix Decisions Goal : Maximize profit by choosing an optimal product mix based on contribution margin. Solved Example : Problem : Product A has a contrib...
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3. Marginal Costing and Cost-Volume-Profit (CVP) Analysis

  3.1 Marginal Costing Definition : Marginal costing is an accounting approach where only variable costs are considered in product costing and decision-making. Importance : Helps in making short-term decisions as fixed costs are not included in cost per unit calculations. 3.2 Contribution Margin Formula : Contribution Margin = Sales - Variable Cost Significance : It measures the amount available to cover fixed costs and contribute to profit. 3.3 Break-even Analysis Break-even Point : The level of sales at which total revenue equals total costs, resulting in zero profit. Formula :  Break-even Point = Fixed Costs Contribution Margin per Unit \text{Break-even Point} = \frac{\text{Fixed Costs}}{\text{Contribution Margin per Unit}} Break-even Point = Contribution Margin per Unit Fixed Costs ​ Solved Example : Problem : A company’s fixed costs are $50,000, the selling price per unit is $20, and the variable cost per unit is $12. Find...
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2. Preparation of Unit Cost Sheet

  2. Preparation of Unit Cost Sheet Definition : A unit cost sheet is a statement that shows the cost per unit of production, breaking down all components of cost. Components of a Cost Sheet : Direct Materials : Raw materials used. Direct Labor : Wages paid to workers involved in production. Factory Overheads : Indirect production costs, like depreciation and electricity. Selling & Distribution Overheads : Costs for selling and delivering products. Example Format of a Cost Sheet Cost Elements Total Cost ($) Cost per Unit ($) Direct Material 10,000 10 Direct Labor 8,000 8 Factory Overheads 2,000 2 Selling & Distribution 1,000 1 Total Cost 21,000 21 Solved Example : Problem : A company produces 500 units, incurring $4,000 in direct materials, $3,000 in direct labor, $1,000 in factory overheads, and $500 in selling expenses. Prepare the cost sheet and determine the cost per unit. Solution : Total Cost = $4,000 + $3,000 + $1,000 + $500 = $8,500 Cost per Unit = $8,500 / 500 unit...
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1 Introduction to Cost Concepts

  1.1 Meaning of Cost Definition : Cost is the amount of expenditure incurred on a particular product or activity. In business, understanding cost is essential for pricing, profitability analysis, and financial planning. Types of Costs : Explicit Costs : Direct, out-of-pocket expenses (e.g., raw material cost). Implicit Costs : Opportunity costs or the cost of foregone alternatives (e.g., interest on capital invested). 1.2 Cost Concepts Fixed Cost : Cost that does not change with the level of output. Examples include rent, insurance, and salaries. Variable Cost : Cost that varies directly with the production level, such as raw materials and direct labor. Semi-variable Cost : Cost that has both fixed and variable components, like electricity bills where there’s a fixed charge plus a usage-based charge. 1.3 Cost Classification By Nature : Direct Costs : Costs directly associated with production (e.g., raw materials). Indirect Costs : Costs not directly traceable to a product but nece...
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Forensic and Carbon Accounting

  Forensic Accounting Forensic Accounting involves using accounting skills to investigate financial discrepancies and fraud within an organization. It combines accounting, auditing, and investigative skills to identify, analyze, and report any instances of financial misconduct. This discipline is widely used in fraud detection, dispute resolution, and legal cases involving financial issues. Key Areas of Forensic Accounting: Fraud Detection and Prevention Forensic accountants identify signs of fraud, such as misappropriation of assets, fraudulent financial reporting, and corruption. They analyze accounting records for discrepancies, unusual transactions, and altered documents. Example : Detecting falsified sales transactions that inflate revenue figures on a company’s income statement. Litigation Support Forensic accountants provide evidence and expert testimony in court cases related to financial disputes. This includes divorce settlements, shareholder disputes, and cases of breac...
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Practical Questions and Numerical Problems

 1. Journal Entries Q1 : A business owner started a company with an initial capital of ₹1,00,000 in cash. Record the journal entry. Answer : Debit: Cash ₹1,00,000 Credit: Capital ₹1,00,000 Q2 : Record the following transactions in journal entries: Purchased office supplies worth ₹5,000 in cash. Paid rent of ₹8,000 for the office. Sold goods worth ₹15,000 on credit to a customer. Paid ₹3,000 for advertisement. Answer : Debit: Office Supplies ₹5,000; Credit: Cash ₹5,000 Debit: Rent Expense ₹8,000; Credit: Cash ₹8,000 Debit: Accounts Receivable ₹15,000; Credit: Sales ₹15,000 Debit: Advertising Expense ₹3,000; Credit: Cash ₹3,000 2. Ledger and Trial Balance Q3 : Prepare a trial balance using the following transactions: Cash ₹50,000 Furniture ₹10,000 Accounts Payable ₹20,000 Sales ₹30,000 Rent Expense ₹5,000 Answer : Trial Balance : Cash: Debit ₹50,000 Furniture: Debit ₹10,000 Accounts Payable: Credit ₹20,000 Sales: Credit ₹30,000 Rent Expense: Debit ₹5,000 Total Debit = Total Credit = ...
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Introduction to Accounting: Basics and Examples

 1. Basics of Accounting Key Terms and Definitions Assets : Resources owned by a business (e.g., cash, inventory, buildings). Example : If a company buys a car for its operations, the car is considered an asset. Liabilities : What the business owes (e.g., loans, accounts payable). Example : A bank loan taken to purchase new machinery is a liability. Income : Money earned by the business from its operations (e.g., sales revenue). Example : If a store sells products worth ₹10,000, that amount is income. Expenses : Costs incurred by the business (e.g., rent, salaries). Example : Monthly rent of ₹5,000 for office space is an expense. GAAP (Generally Accepted Accounting Principles) : A set of rules and standards used in accounting to ensure consistency and transparency. Financial Accounting vs. Cost Accounting vs. Management Accounting Financial Accounting : Focuses on creating financial statements for external users. Cost Accounting : Analyzes costs related to production to help contro...
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