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TD/U4 Topic 9 Costing & Training Budget

COSTING

Costs can be simply defined as the money or resources associated with a purchase/business transaction or any other activity. Different industries adopt different methods of ascertaining costs of their products depending on the nature of the production and the type of output.

TYPES OF COSTING

(i) Marginal Costing

Through this method only the variable cost is allocated i.e. direct materials, direct expenses, and direct labour and variable overheads to production. It does not include the fixed cost of production.

(ii) Absorption Costing

It is the technique to absorb the fixed and variable costs to production. In this method, full costs i.e. fixed and variable costs are absorbed to the production.

(iii) Standard Costing

When the costs are predetermined on certain standards in a given set of operating conditions, it is called standard costing.

(iv) Historical Costing

In this method the costs are determined in terms of actual costs and not predetermined standard costs. Costs are determined only after it is incurred. Almost all organizations adopt this method of costing.

IMPORTANT METHODS OF COSTING

(i) Unit costing

It is also called the single output costing. It is used in costing of products that are expressed in identical units and suitable for products that are manufactured by continuous activity.

Example: Cement manufacturing, Dairy, Mining etc.

(ii) Job costing

Under this method, costs are ascertained for each work order separately as each has its own specification and scope. Tailor made products also get covered by this type of costing.

Example: Repair of buildings, Painting etc

(iii) Contract costing

In this method costing is done for jobs that involve heavy expenditure and stretches over long period and across different sites. It is also called as terminal costing.

Example: Construction of roads and bridges, buildings etc

(iv) Batch costing

Through this method the costing is done for units that are produced in batches that are uniform in nature and design.

Example: Pharmaceuticals

(v) Process costing

It is used for the products which go through different processes. Like in the process of manufacturing cloth, different processes are involved namely spinning, weaving and finished product. Each process gives an output that is a finished product in itself and can be sold. That is why; process costing is used to ascertain the cost of each stage of production.

(vi) Service or operating costing

It is the method used for the costing of operating a service such as Public Bus, Railways, Nursing home. It is used to ascertain the cost of a particular service.

(vii) Multiple costing

When the output comprises different assembled parts like in televisions, cars or electronic gadgets, cost has to be ascertained for the component as well as the finished product. Such costing may involve different / multiple methods of costing.

(viii) Product Costing

Product costing methods are used to assign cost to a manufactured product. The main costing methods available are process costing, job costing and direct costing. Each of these methods apply to different production and decision environments.

The main product costing methods are:

  • Job costing: This is the assignment of costs to a specific manufacturing job. This method is used when individual products or batches of products are unique, and especially when jobs are being billed directly to customers or are likely to be audited by customers.
  • Process costing: This is the accumulation of labor, material and overhead costs across departments or entities, with the total production cost then being allocated to individual units. Process costing is used when large quantities of the same product are manufactured, usually in long production runs.

(ix) Inventory Costing

Different inventory costing methods are best suited to different situations and financial goals.

  • First In, First Out: Under the First In, First Out (FIFO) method, the oldest costs are assigned to inventory items sold, regardless of whether the sold items were actually purchased at that cost. When the number of inventory items purchased at the oldest cost is sold, the next oldest cost is assigned to sales.
  • Last In, First Out: The last in, first out method (LIFO) is the exact opposite of the FIFO method, assigning the most recent inventory costs to items sold
  • Average Cost Method: The average cost method assigns inventory costs by calculating a moving average of all inventory purchase costs.
  • Specific Identification Method: The specific identification method perfectly matches inventory costs with units sold, assigning the exact cost of each sold inventory item when the specific item is sold.

TRAINING BUDGET

A good training budget definition is comprehensive, includes all costs related to training and acts as a road map for how funds should be used for training throughout the year. This helps ensure that you get the most bang for your buck and do not end up overspending on fancy lunches or dinners while not providing the best possible trainers and materials.

Importance of a Training Budget in Organizations

Establishing a training budget for your organization ensures you allocate appropriate funds for employee development over the course of a year. By planning for training expenses and linking them to strategic objectives, you typically avert cost-cutting measures that could reduce your training budget if executives perceive it as overhead or superfluous. Ensure that your employees get the skills and knowledge they need to perform effectively on the job. Make allowances for tuition reimbursement for career development as well.

Readiness

Managing training budgets and resources effectively ensures that personnel have the skills and competencies required to complete job tasks. The training budget includes the direct and indirect costs required to analyze, design, develop, implement, evaluate and maintain courses and materials. In some industries, employees must maintain their credentials to adhere to local, state and federal regulations. For example, the Occupational Safety and Health Administration standards require employers to train employees on health and safety topics related to their jobs.

Benefits

Gathering the costs associated with training programs allows sponsors and stakeholders to prioritize efforts and distribute funding accordingly. For example, create a spreadsheet listing training activities, development and delivery costs, number of people affected and potential business impact. This allows sponsors and stakeholders to optimize training expenses by evaluating the options, comparing development costs to purchasing off-the-shelf courses and considering different methods of providing instruction, such as distance learning, self-paced modules or social media mechanisms. Reviewing the training budget from a previous year allows you to evaluate what worked and what didn’t.

Alignment

Identifying funds for training ensures that employees get the programs they need to accomplish the company’s strategic goals. For example, if you state your company’s goal is to reduce product errors, eliminate waste and improve customer satisfaction, you might consider training that certifies your personnel in quality management techniques such as Six Sigma. By identifying the costs associated with Six Sigma training at the beginning of the year, you ensure these programs can proceed throughout the coming months. Rather than wait to expose performance gaps, certify individuals as Black Belts to start off in the right manner.

Monitoring

After establishing a comprehensive training budget, you can monitor expenses associated with training activities and ensure you’re getting the most for your money. For example, if you running training classes for 20 participants and only five people attend, utilization is low and might indicate a poor use of your funds. By monitoring instructor costs, training material printing and other expenses, you can spot trends and implement actions to reduce unnecessary spending.

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