Current cost accounting

In the situation shown in the historic capital column of Table 6.10 the tax paid and, on the whole company basis, the dividend paid resulting from the apparent profit shown by the above operation would in fact be taken from cash required to maintain the capital base of the company. To correct this highly undesirable situation the current cost accounting approach used in column 3 of Table 6.10, in which all factors in the cost build-up are expressed in terms of current values, is being increasingly adopted. The Institute of Chartered Accounts supports a system of this type and many major companies have worked together to develop a mutually acceptable system. 

Depreciation of capital equipment is based on a payback period of 8-10 years. However, current cost accountancy practice assumes payback in under 5 years PU processing equipment is often estimated on the basis of a 2-year payback period. 

Step 2 Using the data in Step 1 with f.o.b. equipment cost data, add to the equipment list the cost and the corresponding cost index of the cost data. Update the cost data to the current cost index, sum the updated purchase costs to obtain the total f.o.b. purchase cost, Cp, and multiply by 1.05 to account for delivery of the equipment to the plant site. Then, multiply the result by an appropriate Lang factor,/l, to obtain the total permanent investment (fixed capital investment), C-ppi (i.e., without the working capital), or the total capital investment, Ctci (i.e., including an estimate of the working capital at 15% of the total capital investment or 17.6% of the total permanent investment). 

Step 3 Update the cost data to the current cost index. For each piece of equipment, determine the bare-module cost, using bare-module factors, Fbm, from Table 16.11, being careful to determine it properly when the material of construction is not carbon steel and/or the pressure is not near ambient, as given by Eq. (16.12) and illustrated by the following example, before moving to Step 4. As discussed earlier, the bare module cost accounts for delivery, insurance, taxes, and direct materials and labor for installation. 

In both studies, it turned out that steep cost decrease can be achieved by economies of scale up to a production of 30,000 units. Subsequently the rate of cost decrease from economies of scale is diminishing. Current cost at low volume manufacturing is considerably higher leading to higher prices in the market. Both studies did not take ramp up cost during the market introduction phase into account. 

The arbitrariness of this practice was not always as great as it is today. In the early years of the 20th Century when current methods of cost accounting took shape, direct labor contributed heavily to manufacturing costs. There was little in the way of overhead to support these functions. The result was far less distortion from allocations. Today, factories depend much less on direct labor. So, much more of a company s cost is allocated using these rules. 

Transactions can take place at ATMs or at POS machines at remote locations. As the required information is embedded in the card, a bank account is not needed and the POS machine does not have to be connected to a bank. Transaction records can be updated later from the card. While the transaction costs of using smart cards are even lower than those of prepaid debit cards, their main disadvantage is the higher cost of individual cards. The current cost of a smart card is approximately US 3, compared with only US 0.20 for a standard debit card. 

Improvements can be provided through a mixture of estimation with pre-existing detailed data (e.g., current material price lists or post-calculations of identical parts or similar parts), with including current cost trends (materials, labor, etc.), which are thus taken into account at the same time. Figure 5.5 shows again the described relationships in graphical representation. 

Miscellaneous Commercial Applications. Dimer acids are components of "downweU" corrosion inhibitors for oil-drilling equipment (see Petroleum Corrosion and corrosion inhibitors). This may account for 10% of current dimer acid use (71). The acids, alkyl esters, and polyoxyalkylene dimer esters are used commercially as components of metal-working lubricants (see Lubrication). Dimer esters have achieved some use in specialty lubricant appHcations such as gear oils and compressor lubricants. The dimer esters, compared to dibasic acid esters, polyol esters and poly(a-olefin)s, are higher in cost and of higher viscosity. The higher viscosity, however, is an advantage in some specialties, and the dimer esters are very stable thermally and can be made quite oxidatively stable by choice of proper additives. 

Accountants regard assets as resources that have not yet been used up. Assets are normally shown on the balance sheet at cost minus accumulated depreciation. In this sense, the depreciation charge for an accounting period is the means of converting a part of an asset into a current expenditure that is then listed as an expense in the income statement. 

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