Cost accounting simple introduction.pptx

Simple Introduction to Cost Accounting

1. Title: Introduction to Cost Accounting Subtitle: Understanding the Basics of Cost Accounting Lecturer : Zheer rafiq hassan Date: 17/6/2024

2. Learning Outcomes Define Cost Accounting and its objectives. Differentiate between Cost Accounting and Financial Accounting. Understand the role of cost information in decision-making. Overview of basic cost concepts: cost, expense, and loss.

3. https:// www.youtube.com/watch?v=ZMGr_P1TX9k

4. What is Cost Accounting? Definition: Cost accounting is the process of recording , classifying , and analyzing costs incurred during business operations . Purpose: Helps in controlling costs, planning budgets, and improving profitability . Example: Tracking production costs to optimize resource allocation.

5. Objectives of Cost Accounting Cost Control : Helps management in keeping costs within limits . Cost Planning : Assists in budgeting and forecasting . Decision-Making : Provides cost-related data for strategic decisions (pricing, product mix ). Performance Evaluation : Monitors efficiency and performance at various levels . Profitability Analysis : Assesses which products or services are more profitable.

6. Difference between Cost Accounting and Financial Accounting Cost Accounting Cost control and reduction Internal (managers ) As needed Detailed on department + process wise ( COGS , cost center report Financial Accounting Reporting financial position External (shareholders, creditors, regulators ) Periodic (annually, quarterly ) Summary (balance sheet, income statement Features Purpose Users Perdiod Reports

7. Importance of Cost Information in Decision-Making Cost information is crucial for Pricing decisions : Understanding cost structure helps set profitable prices . Make-or-buy decisions : Deciding whether to produce in-house or outsource . Product discontinuation : Identifying which products are underperforming. Budgeting and variance analysis : Comparing actual vs. budgeted costs to control performance .

8. Basic Cost Concepts Cost : The amount of resources sacrificed to achieve an objective (e.g., manufacturing a product). Example: Raw materials, labor . Expense : Expired cost that has been matched with revenue during an accounting period. Example: Rent paid for a factory . Loss : Cost that provides no benefit or revenue. Example: Spoiled inventory, bad debts.

9. Classification of Costs By Nature : Direct and Indirect Costs. By Behavior : Fixed, Variable, and Semi-variable Costs. By Function : Production, Administration, Selling, and Distribution Costs. By Controllability : Controllable and Uncontrollable Costs

10. Direct and Indirect Costs Direct Costs : Directly traceable to a specific product or department (e.g., direct materials, direct labor). Indirect Costs : Cannot be directly traced and are spread across multiple products or departments (e.g., factory overheads).

11. Fixed, Variable, and Semi-variable Costs Fixed Costs : Do not change with production volume (e.g., rent, salaries ). Variable Costs : Change in direct proportion to production volume (e.g., raw materials ). Semi-variable Costs : Contain both fixed and variable components (e.g., electricity bills with a base charge and usage charge).

12. Summary Cost Accounting helps in tracking, controlling, and reducing costs . It supports management in decision-making through accurate cost data . Understanding the classification and behavior of costs is key to effective cost control.