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Question One:
It is written that “Notional costs are the cost that are introduced into a costing system in order to present a more realistic measure of the cost of item.”
– How can a cost make cost accounting realistic which is itself a estimate or hypothetical?Question Two:
It is saying that notional cost is charged on cost of item but later on, it shows double entry as Dr Appropriate Overhead Account and Credit Statement of Profit and Loss (Cost Account).
Why are notional cost credited, these should be debited instead in SOPL? (Page 229, BPP book MA2)Q1 Perhaps the costing system does not capture all costs, such as research and development costs.
Q2 I am away now for some time so can’t access BPP study material. Sorry.
Right sir.
Question 2: Sir I have just given reference, otherwise I have mentioned what is written in book. Please have a look. Actually you are only person who answer to my question.Let’s say you are making a product that takes a lot of a manager’s time. You have no time sheet system for managers and all salaries are debited to the salaries account. However, you want to reflect the extra managerial time in the cost of the item. Perhaps you will use the item’s cost to determine the selling price.
The managerial time is added to the item’s cost by debiting its overheads. When the item is sold the total cost will go through cost of sales. That’s OK for costing purposes, but the salary cost added is not a real, additional cost (the salary cost has already been debited to the salaries account) so to ensure that we don’t double-count the cost it has to be credited to the SOPL.
Notional costs are very rare. Don’t worry about them.
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