unit-1.pptx cost accounting ppt materials

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1. COST ACCOUNTING UNIT-1

2. ACCOUNTING: It helps to analysis the financial position of the company and decision making. It is the process of measuring,processing and sharing financial and other information about business and corporations.

3. FATHER OF ACCOUNTING: LUCA PACIOLI

4. TYPES OF ACCOUNTING: Tax accounting. Financial accounting .-A branch of accounting involving a process of recording,summarizing of financial transactions related to a busniess .( ledger,balance sheet) Management accounting-(To make decisions,policies,strategies ) Cost accounting(process of recording ,analyzing and reporting company’s cost related to production) Eg : canteen Forensic accounting. Governmental accounting. International accounting. Auditing.

5. FATHER OF COST ACCOUNTING: Jerome Lee Nicholson

6. COST: (Price of the product) Value of money that has been used to produce something or to deliver a service. COSTING: It is ascertaining the cost of goods and services and other business elements.( Eg : Grading ,Packing)

7. COST ACCOUNTING: It is a specailised branch of accounting which has been developed because of limitations of financial accounts Cost accounting is concerned with recording, classifying, summarizing cost for determination of cost of product or services, planning, controlling and reducing such costs and furnishing of information to management for decision making.

8. OBJECTIVES OF COST ACCOUNTING Ascertainment of costs-done through methods and techniues of costing Estimation of costs-it helps to estimate the costs Cost control-budgets and standards are fixed for materials , labour and overheads. Cost reduction-through the t echniques of budgetary control,std costing,material,labour o/h control. Determining selling price-fixed cost(rent, loan repayments, insurance) and variable cost(raw materials,cost that changes when volume changes) Facilitating preparation of financial & other statement .(helps) Providing basis for operating policy.

9. ON THE BASIS OF NATURE: Materials Labour Expenses ON THE BASIS OF FUNCTION: Manufacturing cost ( associated with factory) Commercial cost ( AD,Marketing and selling & distribution) CLASSIFICATION OF COST:

10. ON THE BASIS OF DIRECT AND INDIRECT : Direct cost ( dm,dl,de ) Indirect cost/Overhead)(indirect M,L,E) ON THE BASIS OF VARIABILITY: Fixed costs (which do not change with increase or decrease in volume )-remains constant Rent : The rent you pay for an office or factory space is a fixed cost example. ... Salaries: The salary you pay employees is an example of fixed cost because it is not paid hourly or per unit produced. . Variable costs-pen Semi Variable costs(less common-salaried hotel employees)

11. ON THE BASIS OF CONTROLLABILITY: Controllable costs Uncontrollable costs ON THE BASIS OF NORMALITY Normal costs Abnormal costs

12. Controllable cost Imagine you manage a small café. One of your controllable costs is the cost of coffee beans. Here’s how : Cost of Coffee Beans: This is a direct cost because it directly relates to the coffee you serve . Controllability : As the café manager, you can decide where to buy the beans from, negotiate prices with suppliers, or even change the type or quality of beans used . Impact : By choosing a supplier with better prices or adjusting the quality of beans, you can directly affect your overall costs and potentially increase your profit margin.

13. Example of Uncontrollable Cost:Let's consider a retail store manager : Rent for the Store: The monthly rent is an uncontrollable cost for the store manager because it is set by the landlord based on market rates and lease agreements . Nature of the Cost: The rent is a fixed cost that remains constant regardless of the store's sales performance or managerial decisions . Impact : The store manager cannot negotiate or reduce the rent on short notice. It's a long-term contractual obligation that they must fulfill.

14. Example of Normal Cost : Imagine you operate a manufacturing company that produces furniture : Cost of Raw Materials: The cost of wood, fabric, and other materials used in manufacturing furniture is a normal cost. It's a regular expense necessary for production and is budgeted for in advance . Wages of Production Workers: The salaries and wages paid to production workers who manufacture the furniture are also normal costs. These are essential to the ongoing production process and are part of the standard operating expenses.

15. Example of Abnormal Cost:Continuing with the manufacturing company example : Repair Costs Due to Machinery Breakdown: If a critical piece of machinery breaks down unexpectedly, requiring costly repairs, these repair costs would be considered abnormal. They are not part of the regular maintenance budget and disrupt normal operations . Legal Fees for Litigation : If the company faces unexpected legal issues, such as a lawsuit, the legal fees incurred would be abnormal costs. These expenses are not part of everyday business operations and arise due to unusual circumstances.

16. ON THE BASIS OF FINANCIAL ACCOUNTS: Capital costs-Capital costs involve investments in long-term assets that are essential for the company's operations or expansion. These assets are not meant for immediate consumption but rather contribute to generating revenue over an extended period. Revenue costs-Imagine a small bakery that sells cakes and pastries. The revenue costs for this bakery would include: Deferred revenue costs-For example, a company might pay for insurance coverage for the entire year upfront. The cost of insurance is initially recorded as a prepaid expense and recognized as an expense each month as the coverage is used up. ON THE BASIS OF TIME: Historical costs-incurred in past Pre-determined costs-based on the future market price estimated cost

17. Cost of Ingredients (Direct Cost): The bakery purchases flour, sugar, eggs, butter, and other ingredients to make cakes and pastries. These costs directly contribute to the production of goods sold (cakes and pastries ). Labor Costs (Direct Cost ):Wages paid to bakers and assistants who prepare and bake the cakes and pastries. This is another direct cost directly associated with the production of goods . Marketing and Advertising Expenses :Costs incurred to promote the bakery’s products, such as placing ads in local newspapers, sponsoring local events, or running social media campaigns to attract customers . Delivery and Packaging Costs (Distribution Costs): Expenses related to delivering cakes and pastries to customers, including packaging materials, delivery vehicle maintenance, and fuel costs . Credit Card Processing Fees: Fees charged by payment processors for accepting credit card payments from customers. These fees are a direct deduction from the revenue received for each sale . In this example, these costs are necessary for the bakery to produce and sell its products effectively. They are all considered part of the "revenue costs" because they directly support the process of generating revenue through the sale of cakes and pastries. Understanding and managing these costs helps the bakery calculate its profitability and make decisions to optimize its operations

18. ON THE BASIS OF PLANNING AND CONTROL: Budgeted cost-Budgeted Cost is the estimated money set aside for a project, task, or activity, based on forecasts or planning. It serves as a benchmark for anticipated expenditures. Actual Cost is the true amount of money spent on a project, task, or activity. Standard cost-Standard costs are also known as “pre-set costs”, “predetermined costs” and “expected costs”. At the end of the year (or accounting period) if the standard costs are higher than the actual expenses, than the company is considered to have a favorable variance. ON THE BASIS OF DECISION MAKING AND CONTROL Budgeted cost- Standard cost

19. ON THE BASIS OF DECISION MAKING AND CONTROL: Shut down cost-plant is in operation or shutdown Sunk cost-not relevant to cuurent decision amking Opportunity cost- Imputed cost Out of pocket cost Replacement cost Conversion cost Product cost Period Cost

20. M ETHODS OF COSTING Job costing Contract costing Batch costing Process costing Operating costing Operation costing Unit or output costing Multiple costing Activity Based Costing

21. TECHNIQUES OR TYPES OF COSTING: Historical costing Standard costing Marginal costing Uniform costing

22. COST OBJECT : Cost Object is the method of measuring the cost of the product, segment, customer, etc., separately so as to determine the exact cost along with the determination of the selling price.

23. COST CENTRE: A location ,person or item of equipment for which costs may be ascertained and used for the purpose of cost control. Cost Centre is a term which includes various departments –both production & service departments-processes, work orders, operations, machine centres , areas or regions of sales,warehouses,persons, etc .,in relation to ehich costs are ascertained or accumulated.

24. COST UNIT It is a device for the purpose of breaking or separating costs into smaller sub-divisions. T hese smaller subdivsions are attributed to products or services to find product cost or service cost. The forms of measurement like number,weight,area,length,value etc.

25. COSTING-AN AID TO MANAGEMENT PLANNING DECISION MAKING CONTROLLING

26. A good system of cost accounting serves management in the following ways: Classification & sub-division of costs Control of materials , labour & overhead costs Business policies Budgeting Standards for measuring efficiency Best use of limited resources Instrument of management control Cost audit Special factors Price determination

27. ELEMENTS OF COST FACTORY OVERHEAD ADMINISTRATIVE OF OFFICE OVERHEAD SELLING & DISTRIBUTION OVERHEAD