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1. Cost accounting

2. CONTENT INTRODUCTION TO COST ACCOUNTING MEANING OF COST AND COST ACCOUNTING TERMINOLOGY OF COST OBJECTIVES OF COST ACCOUNTING ELEMENTS OF COST CLASSIFICATION OF COST METHODS OF COSTING

3. MEANING OF COST Cost means the amount of expenditure incurred on a given thing. Example: The cost of making a chair includes, the amount spent on materials like timber, nail, wages paid to carpenter and etc.,

4. Meaning of cost accounting Cost accounting is the process of classifying, recording, allocating and reporting the various costs incurred in the operation of an enterprise.

5. Objectives of cost accounting Ascertainment total cost and cost per unit Discloser of proportion of different l elements of cost Providing necessary data for fixing selling price Ascertainment of profitability Aiding in the preparation of tender and quotation Identification of sources of wastages and losses Facilitate formulation of incentive and bonus plan Cost control and cost reduction Providing basis for operating policies

6. Terminology of cost Costing It means the technique and process of ascertaining cost. Technique - refers to the body of principles and rules. Process – refers to the procedure. The process and technique of costing depend on the nature of industry and type of product and the method of production

7. Cost unit It refers to a unit of product, service or time in relation to which costs may be ascertained or expressed . Example: Industry cost unit Sugar per quintal Cement, steel, coal per tonne Textile per meter Passenger transport per passenger Km Goods transport per tonne Km

8. Cost centre It is a location, person or item of equipment or group of this in relation to which cost can be ascertained. It is a sub-division of the organization to which costs can be charged . Example : Location – works department, welding shop etc., Person – supervisor, salesman Item of equipment – delivery van and other equipment

9. Elements of cost Element of cost Material Labour Expenses Direct Indirect Direct Indirect Direct Indirect Overheads Factory overhead Administrative overheads Selling & Distribution overheads

10. Divisions of cost Prime cost = Direct material + Direct labour + Direct expenses Factory cost = Prime cost + Factory overhead Cost of Production = Factory cost + Administrative overheads Cost of sales = Cost of production + Selling and Distribution overheads

11. Classification of cost According to nature or elements According to function According to variability Material cost Labour cost Overheads Production cost Administrative cost Selling & Distribution overhead Fixed cost Variable cost Semi – variable cost According to Normality According to controllability According to Time Normal cost Abnormal cost Controllable cost Uncontrollable cost Historical cost Pre-determined cost

12. Classification of cost According to Managerial decision According to capital & revenue According to association with products Marginal cost Differential cost Imputed cost Replacement cost Opportunity cost Sunk cost Shut down cost Conversion cost Avoidable cost Unavoidable cost Capital cost Revenue cost Product cost Period cost

13. FACTORY OVERHEAD – Indirect Expenses incurred from the stage of raw materials to finished goods. ADMINISTRATIVE OVERHEAD – Expenses incurred for running the administrative office. SELLING OVERHEAD – Expenses incurred for actual sales and promotion of sales DISTRIBUTION OVERHEAD – Expenses concerned with the packaging and delivery of goods to the goods. FIXED COST – cost remain fixed irrespective of the level of output VARIABLE COST – cost varies with the volume of output SEMI-VARIABLE COST – cost which is partly fixed and partly variable

14. NORMAL COST – cost which is incurred at a given level of output under normal condition ABNORMAL COST - cost which is incurred at a given level of output under abnormal condition CONTROLLABLE COST – cost which can be minimized by the executive actions UNCONTROLLABLE COST - cost which can not be minimized by the executive actions HISTORICAL COST – cost which are ascertained after they have been incurred

15. PRE-DERTERMINED COST – cost which are determined even before they are actually incurred MARGINAL COST – Only variable costs are taken in to account for determining the costs of the products DIFFERENTIAL COST – Cost arises as a result of change in the level of output IMPUTED COST – Imaginary costs which do not involve payment in cash REPLACEMENT COST – cost of replacement of an asset at the current market price. OPPORTUNITY COST – It is value of benefit sacrificed in favour of an alternative course of action SUNK COST- Irrecoverable cost which is caused by the complete abandonment of a particular plant. SHUT DOWN COST – cost which continue to occur even if there is temporary stoppage of production activities

16. METHODS OF COSTING JOB COSTING CONTRACT COSTING BATCH COSTING PROCESS COSTING UNIT COSTING OPERATING COSTING OPERATION COSTING MULTIPLE COSTING

17. BASIC COST SHEET     DIRECT MATERIAL XXXX DIRECT LABOUR XXXX DIRECT EXPENSES XXXX   PRIME COST XXXX FACTORY OVERHEADS XXXX   FACTORY COST XXXX OFFICE OVERHEADS XXXX   COST OF PRODUCTION XXXX SELL & DIST OVERHEADS XXXX   COST OF SALES XXXX   PROFIT XXXX SALES XXXX

18. COST SHEET - ADVANCED OPENING STOCK OF RAW MATERIALS XXXX +PURCHASES XXXX +CARRIAGE INWARDS XXXX -CLOSING STOCK OF RAW MATERIALS XXXX   VALUE OF MATERIALS CONSUMED XXXX +DIRECT WAGES XXXX +DIRECT EXPENSES XXXX   PRIME COST XXXX +FACTORY OVERHEADS XXXX +OPENING STOCK OF WIP XXXX -CLOSING STOCK OF WIP XXXX   FACTORY COST XXXX (CONT.)  

19. COST SHEET - ADVANCED FACTORY COST XXXX   +ADMINISTRATIVE OVERHEADS XXXX   COST OF PRODUCTION XXXX +OPENING STOCK OF FINISHED GOODS XXXX -CLOSING STOCK OF FINISHED GOODS XXXX   COST OF GOODS SOLD XXXX +SELL. & DIST. OVERHEADS XXXX   COST OF SALES XXXX +PROFIT XXXX   SALES XXXX

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