Effect Of Corona Virus On Cost Accounting: Critical Analysis

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Effect Of Corona Virus On Cost Accounting: Critical Analysis

Introduction

1-Importance and objectives of joint cost allocation:

In a system for estimating the cost of absorption, the cost of production must be charged to the costs of the product. When more than one product participates in some common production costs, a basis must be established for sharing these costs.
Joint costs are needed for measuring profitability of joint products.
Joint costs are needed for pricing decisions.
Joint costs are part of cost payment under contracts.
Joint costs need to be allocated for inventory and cost of goods sold.
Joint costs are used to compute and allocated total product cost.

2- What Is The Effect Of Corona Virus On Cost Accounting?

Corona viruses are a group of widespread viruses known to cause diseases ranging from common colds to more severe diseases, such as Middle East Respiratory Syndrome (MERS) and severe acute respiratory syndrome (SARS). The newly created corona virus (nCoV) is a new strain of the virus that has not been previously discovered in humans (3). Measures to prevent transmission of the virus include limiting the movement of people, restricting flights and other travel, temporarily closing companies and schools, and canceling events (4). It does not directly affect cost accounting, but rather affects all economic activities that require cost accounting. In my opinion, to avoid the crisis and complete work, must work from home to avoid mixing and spreading the disease.

3-What Is The Effect Of Corona Virus On Joint Cost?

*Joint cost allocation:

Cost incurred in a process that yield difference several products for example (petrochemicals, dairy products and plastic) and we cannot determine the profit and loss only after the allocation.

*Importance of joint cost allocation:

Cost becomes useful when expenses are at the same time in favor of two or more divisions of the company. As such, the accounting department should allocate twice the cost, in the appropriate proportion, to the corresponding departments.

The shared cost is a useful tool to encourage budgetary cooperation between departments.

It is not always possible to precisely separate cost or shareholding between beneficiaries, but shared cost is an acceptable method of accounting for most companies.

*Main core:

Ex:

Joint Cost 10000

A 1000 units 8€

Splitoff Point B 3000 units 2€

The Splitoff Point: Is the point when the costs of two or more products can be separately identified. After splitoff, each product incurs separable (or independent) costs. Allocating joint costs using sales value at splitoff may be the most effective method for planning and budgeting for joint costs.

*Joint cost allocation methods:

1- Physical Units (Output) :

Physical output

weight

allocation cost A B Total

1000 3000 4000

0.25 0.75 1

2500 7500 10000

– Income Statement:

2-Sales revenue = units sold × selling price

= 8000 – 2500 = 5500 A

= 6000 – 7500 = (1500)

*Further Processing:

By adding price to selling price we can sold products more expensive and yield difference several products just as (steel, wood and plastic)

Firms that produce more than one product must understand accounting concepts, such as common and overhead costs. These theories explain differences in cost allocation and help companies accurately forecast costs and profits.

Shared costs are not only shared with products, but may be shared in operations, functions, responsibilities, customers, sales territories, time periods, and similar costing units. For example, the salary of the director of the production department who manufactures three products is an example of the overhead cost.

in relation to the products. But the salary is the direct cost of the production department. (3) joint cost allocation are doubled.

Literature review

The aim of the analysis is to establish criteria and methods for solving these problems in a fair manner. In a fair and reasonable manner. Thus cost allocation is ultimately concerned with justice. Methods and principles of cost allocation

That you are likely to find acceptance should somehow be based on primitive,

Logical ideas of justice and fairness.

But what exactly does a fair word mean? According to Webster (1981),

Stems from dawn. Old German term meaning ‘Beautiful’. Fair Means. (3)

Conclusion

Joint cost allocation is the weighted mean of the various sources. In the process of calculating the costs of manufacturing industries, it is necessary to find a common cost that combines all manufacturing industries, or rather, the unified source cost of these industries. These processes that collect manufacturing industries can occur in the basic stage of production where all products are one common product, which is the source, and thus becomes more effective. The joint industries process continues until you reach the point of separation, where at this point it is necessary to separate the transforming products from the source and deal with each product separately. To avoid the virus and protect workers and employers they must work from home and everything done online if it was meetings or projects and all departments of accounting should work from home too.

Reference

Organization, World Health. [Online] https://www.who.int/ar/health-topics/coronavirus.
Baur, David. www.pwc.ch.com. [Online] 18 March 2020. https://www.pwc.ch/en/insights/accounting/accounting-implications-of-the-effects-of-coronavirus.html?fbclid=IwAR3Qj-WSemiO_eqAvXAYjsXLouTDJAxlIMhWjHDiFi8_oZicfD8Tf2ib9QY.
article, Best. [Online] https://ar.bestarticleonline.com/joint-common-costs.
YOUNG, H. Peyton. [Online] http://pure.iiasa.ac.at/id/eprint/2596/1/XB-85-003.pdf.
Managment, Product Life Cycle. www.link.springer.com. [Online] 11 April 2015. https://link.springer.com/chapter/10.1007/978-3-319-17440-2_1.
Lumen. www.courses.lumenlearning.com. [Online] https://courses.lumenlearning.com/wm-accountingformanagers/chapter/value-chain/.