Unit-I.pptx FUNDAMENTALS OF COST AND MANAGEMENT ACCOUNTING

Cost accounting is a branch of accounting and has been developed due to the limitations of financial accounting.
Financial accounting is primarily concerned with record keeping directed towards the preparation of profit and loss account and balance sheet.
It provides information regarding financial position on a particular date.
The management however requires far more detailed information than what the financial statements can offer.

1. FUNDAMENTALS OF COST AND MANAGEMENT ACCOUNTING UNIT-I

2. EVOLUATION OF COST ACCOUNTING Cost accounting is a branch of accounting and has been developed due to the limitations of financial accounting. Financial accounting is primarily concerned with record keeping directed towards the preparation of profit and loss account and balance sheet. It provides information regarding financial position on a particular date. The management however requires far more detailed information than what the financial statements can offer.

3. Every businessman tries to reduce the cost of manufacture to the minimum in the stage of complexity and competition more particularly in large scale production. Therefore the businessman looks for information to study the cost of manufacture in the past and on this basis he assesses what will be the cost in future.

4. Cost Accounting - Meaning It is the method of accounting for cost. The process of recording and accounting for all the elements of cost is called ‘Cost Accounting’. Cost accounting is a branch of accounting that focuses on recording, analyzing, and controlling the costs associated with production or service delivery. It involves tracking all costs such as materials, labor, and overhead to determine the total cost of products or services. The primary goal of cost accounting is to provide information to managers for budgeting, cost control, and decision-making, ultimately improving efficiency and profitability within an organization.

5. Objectives of Cost Accounting Ascertainment of cost Control of cost Reduction in cost Determination of selling price Matching cost with revenue Providing basis for operating policy

6. Scope of Cost Accounting Cost Control and Reduction Budgeting and Forecasting Cost Allocation Inventory Valuation Profitability Analysis Decision-Making Support Performance Evaluation Standard Costing and Variance Analysis

7. Tools and Techniques of Management Accounting In recent years, the science of accounting has further developed into an advanced branch known as “Management Accounting”. It is concerned with decision making or policy making. It covers all those services rendered by accounting with the help of which the management is assisted in decision making i.e., policy formulation.

8. Budgeting and Forecasting Variance Analysis Cost-Volume-Profit (CVP) Analysis Break-Even Analysis Standard Costing Marginal Costing Ratio Analysis Trend Analysis

9. Advantages of Cost Accounting Effective decision making Cost reduction Fixation of selling price Effective cost control Reduction of wastage Effective utilization of resources Helps in effective budgeting

10. Limitations of Cost Accounting It is expensive It is unnecessary Failure of costing system Not applicable to many industries It is not reliable

11. Concept of Costs The concept of cost refers to the monetary value of resources used in the production of goods or services. It encompasses all expenses incurred to acquire, produce, or maintain something, and it serves as a key metric in business for evaluating efficiency, profitability, and financial performance. In a business context, cost is not limited to the obvious expenses like raw materials and labor. It also includes indirect expenses (like rent, utilities, and administrative overheads) and sometimes intangible costs (like opportunity costs and environmental impact).

12. Classification of Cost

13. Elements of Cost Materials Cost Direct Materials Indirect Materials Labour Cost Direct Labour Indirect Labour Overhead Cost Factory overhead Administrative/office overhead Selling and distribution overhead

14. Methods of costing Job Costing ( Customers order -Printing Press, Advertisement Industry) Contract Costing ( Laying of Road, Buildings, Bridges ) Batch Costing ( Extension of job costing -Produced in lots and batches) Ex-Readymade Garments ,Drug industries, pharmaceuticals, Automobiles) Process Costing (Several distinct processes to covert into finished product-Paper from pulp, sugar ) Operating Costing ( Transport, Lodging, Cinema Theatres, Hospitals ) Operation Costing Single or Output Costing (only one finished product-Bricks, Coals, cold drinks) Multiple Costing (combination of two or methods – Bicycle Manufacturing) Activity Based Costing

15. Techniques of costing Historical Costing Standard Costing Marginal Costing Uniform Costing