Cost Volume Profit Analysis and Costing for the 21st Century Essay

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Cost Volume Profit Analysis and Costing for the 21st Century

Abstract
Cost value is the analysis of different divisions or business units of a firm on the basis of their opportunity cost and economic rent (“Cost value definition”). The objective of cost value is to determine which division or unit should be kept, expanded, sold, or shut down (“Cost value definition”). Cost analysis is an important component of all economic evaluation techniques, especially when it comes to planning and self-assessment. Cost value is the analysis of different divisions or business units of a firm on the basis of their opportunity cost and economic rent (“Cost value definition”). The objective of cost value is to determine which division or unit …show more content…
By doing this the company can make better decisions which will ultimately improve the moral of the staff. Cost methods is a financial recording and reporting method in which a parent firm’s investment in a subsidiary is shown at cost, without indicating the effect of the subsidiary’s profit or loss on the investment (“Cost method,”). There are various methods of costing, all though the principles behind each method of costing are the same, the methods of analyzing and presenting the costs differ with the nature of the business. I will briefly discuss the three methods. The first method is job costing. Job costing is used where production is not highly repetitive and in addition consists of distinct jobs so that the material and labor costs can be identified by order number (“Basic cost concept,”). The second method is the contract costing method, this method is normally used were large-scale contracts are carried out. The third method is cost plus costing, this is where contracts in addition to cost where agreed upon with the sum or percentage to cover overheads and fit is paid to the contractor. Different industries follow different methods for ascertaining the cost of their products. The method to be used by organizations, depends on the nature of the business. Cost volume profit analysis is an analysis that deals with how
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