Q 1(i)Cost accounting is the classifying, recording and appropriate allocation ofexpenditure for the determination of the costs of products or services, and forthe presentation of suitably arranged data for purposes of control andguidance of management.objectives of cost accounting:1. To ascertain the cost per unit of the different products manufactured by abusiness concern;2. To provide a correct analysis of cost both by process or operations and bydifferent elements of cost;3. To disclose sources of wastage whether of material, time or expense or inthe use of machinery, equipment and tools and to prepare such reports whichmay be necessary to control such wastage;4. To provide requisite data and serve as a guide for fixing prices of productsmanufactured or services rendered;5. To ascertain the profitability of each of the products and advisemanagement as to how these profits can be maximisedQ 1 (ii)Definition of EOQEOQ is the acronym for economic order quantity. The economic order quantity is theoptimum quantity of an item to be purchased at one time in order to minimize thecombined annual costs of ordering and carrying the item ininventory.EOQ is also referred to as the optimum lot size.The formula to calculate the economic order quantity (EOQ) is the square root of[(2timesthe annual demand in unitstimestheincremental costto process anorder)divided by(the incremental annual cost to carry one unit in inventory)].Example of EOQ CalculationAssume that a company has steady demand of 12,000 units per year for one of itsproducts. The company purchases the product from its supplier at a cost of $100 each.The company's incremental cost to process an order is $144 and its incremental annualcost to carry the product in inventory is $16 per unit.(vi)While calculating overheads and especially working out overheads distributionsheet we came across the term “allocation” and during the distribution ofoverheads, we allocate, apportion and re-apportion overheads.Each term has separate meaning and should not be considered as one and thesame. It must also not be confused with usual division of overheads.Allocation of overheads means charging a cost center with such overheadswhich can be measured and identified in relation to that specific cost center. Insimple words, when a cost center is charged with such overheads which havebeen incurred by that cost center only and/or specifically then it means thatoverheads costs have beenallocatedto such cost center.
Usually when division of overheads is required itsnotallocation rather it isapportionment i.e. when overheads cannot be traced back to a particular costcenter or cost unit then overheads are divided on arbitrary basis.