ABSTRACT

Effective management information systems are a basic need of every administrator

of a medical group practice. This general discussion of the subject of cost
accounting enables the administrator to develop a standard cost system and its
related detail cost sheets as a management information tool. Detail cost sheets can
be useful in reviewing utilization of group resources, establishing a basis for fees,
setting a uniform margin of expected profit, and as a guide in negotiation of
contracts with third-party payers.
 INDEX

Sl. No. Contents Page No.

01 Meaning Of Various Concept 1
02 Nature of Cost Accounting 1
03 Objectives of Cost accounting 2
04 Cost Accountancy 2
05 Prime Cost 4
06 Overhead 4
07 Problem 6
08 Solution (Cost Sheet) 7
09 Pie Chart 8
10 Bar Diagram 8
11 Conclusion 9
12 Bibliography 10
COST ACCOUNTING

Meaning of Cost: -
Cost means the amount of expenditure incurred in producing a product or
rendering a service. In other words; cost is also the amount of resources given up in exchange for
some goods or services.

Meaning of Costing: -
Costing is a technique and process of ascertaining the cost. This technic consists
of principles and rules which governs the procedure of ascertaining the cost of product or
services.

Meaning of Cost accounting: -

Cost accounting is the classification, recording and appropriate allocation of
expenditure for the determination of the cost of product or services and for the presentation of
suitably arranged data for the purpose of control and guidance of the management.
According to the institute of cost and management accountants, London, "cost
accounting is the process of accounting for cost from the point at which expenditure is incurred
or committed to the establishment of its ultimate relationship with cost centre and cost unit. In its
widest range of usage, it embraces the preparation of statistical data, the application of cost
methods and ascertainment of profitability of activities carried out”.

Nature of Cost accounting

(a) It is branches of accounting for cost.
(b) It records income and expenditure relating to the production of goods and services
(c) It provides information on cost of every product, job, order, process or operation of the
organisation.
(d) It provides statistical data on the basis of which future estimates and prepared and
quotation are submitted.
(e) It is concerned with cost ascertainment, cost preparation, evaluation of performance, cost
control and cost reduction.

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Objectives of Cost accounting: -
Objectives of Cost accounting are ascertainment of cost, fixation of selling price,
proper recording and presentation of cost data to the management for measuring efficiency and
for cost control.
The aim of cost accounting is to know the methods by which expenditure on material, labour
wages and overheads are recorded, classified and allocated so that the cost of product and
services may be accurately ascertained this cost may be related to sales and profitability may be
determined.

Following are the main objectives of Cost accounting:

a. To ascertain the cost per unit of the different products manufactured by a business concern.
b. To provide a correct analysis of cost both by process or operation and by different elements
of cost.
c. To provide requisite data and services as a guide for fixing the price of the products
manufactured or services rendered.
d. To ascertain the profitability of each of the products and advise the management as to how
these profits can be maximised.
e. To exercise effective control of stocks of raw material, work in progress, consumable stores
and finished goods in order to minimize the capital locked up in these stocks.
f. To advise the management on future expansion policies and proposed capital projects.

Cost accountancy: -
Cost accountancy is the application of costing and cost accounting principles,
methods, and techniques to the science, art and practice of cost control and ascertainment of
profitability.

Direct material: -
Direct material are those materials which can be identified in the product. They can be
conveniently measured and directly charged to the product.
For example: Timber in furniture making, cloth in dress making and bricks in building a house.
Following are normally classified as direct materials.
(a) All raw materials like jute in the manufacturing gunny bags, pig iron in foundary and
fruits in canning industry.
(b) Materials specially purchased for a specific job, process, order like glue for book binding,
starch powder for dressing yarn.
(c) Parts or components purchased or produced like batteries for cans and tyres for cycles.
(d) Primary packaging materials like cartoons, wrapping, card boxes, etc….
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Direct Labour: -
It is all expenses in altering the construction, composition, confirmation, or condition of the
product.
In simple words, it is said that labour which can be conveniently identified or attributed wholly
to a particular Job, product, or process or expenses in converting the raw material into finished
goods. Wages of such labour are known as direct labour.
(a) Labour engaged on the actual production of the product in carrying out an operation or
process.
(b) Labour engaged in aiding the manufacture by the way of supervision, maintenance, tool
settings, transportation of materials, et….
(c) Inspectors, analysts, etc… specially required for such production.
The wages paid to supervision, inspectors, etc… through not direct labour, can be
treated as direct labour if they are directly engaged on specific products or processes.
It can be directly measured without much an effort. Similarly, where the cost is
not significant like the wages of trainers, their labour through directly spent on a product is not
treated as direct labour.

Direct (chargeable) Expenses: -

All the expenses which can be identified to particular cost centre and hence directly charged to
the centre is known as direct expenses. In other words, all expenses incurred specifically for a
particular product, job, department, etc… are called direct expenses. These are directly charged
to the product. Example of such expenses are: royalty, excise duty, hire charges of a specific part
and equipment, cost of any experimental work carried out specially for a particular job, etc….

DIRECT
MATERIAL

DIRECT COST/PRIME DIRECT

COST LABOUR

DIRECT
EXPENSES

FACTORY
TOTAL COST OVERHEAD

ADMINISTRATION
OVERHEAD

INDIRECT SELLING
COST/OVERHEAD OVERHEAD

DISTRIBUTION
OVERHEAD

RESEARCH AND
DEVELOPMENT

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Prime Cost: -
It is the sum total of direct material, direct labour and direct expenses. It also Known as direct
cost.

Overheads: -
Overheads may be defined as the aggregate of the cost of indirect material, indirect labour and
indirect expenses.
Overheads may further be subdivided into following groups: -

(a) Manufacturing overhead / works overhead: -

These are the indirect expenses of operating the manufacturing divisions of a concern and cover
all indirect expenses incurred by the undertaking from the receipt of the order until it’s
completion ready for despatch either to the customer or to the finished goods stores.
Examples of such expenses are: consumable stores like cotton waste, brushes, brooms, etc….
coal and fuel, factory office stationery, works manager's salary, salary of supervision, etc……
(b) Office and administration overhead: -

These are the indirect expenses incurred in formulating the policy, directing the organisation and
controlling the operations of an undertaking which is not related directly to research,
development, production, or selling activities or function.
These expenses are incurred in the direction, control and administration of an undertaking.
Examples are the expenses of stationery and postage in general office of the organisation, salary
of office staff, etc…

OVERHEAD

SELLING &
FACTORY ADMIN DISTRIBUTION
PRIME COST OVERHEAD
OVERHEAD OVERHEAD

FACTORY COST

COST OF
PRODUCTION

COST OF SALES

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 (c) Selling overhead: -
These are those expenses which are incurred in seeking to create and stimulate
demand and of securing orders. These are the expenses of soliciting and securing the orders for
the articles or commodities dealt in and of efforts to find and retain customers. These include
sales office stationery, packaging materials, Cost of catalogue, advertising.
(d) Distribution overhead: -
These are those expenses which are incurred in the process which begins with
making the packed product available for despatch and ends with reconditioning empty packages,
if any, for reuse. It comprises all expenses incurred for the time the product is completed in the
works until it reaches its destination. Under this would be included oil, grease, etc…. for delivery
vans, special packing for bulk orders like bales, crates, etc……
(e) Research and development: -

Research cost is the cost of searching for new and improved products, new
application of materials or production, and new application of improved products by using
improved methods.
Development cost is the exist of the process which begins with the
implementation of the decision to produce a new or improved methods and ends with the
commencement of formal production of that product or by that method.
By grouping the elements of cost in fig.1 the following division of cost are
obtained:
(a) Prime Cost= Direct material + Direct labour + Direct expenses
(b) Works /Factory cost=Prime Cost+ works/ Factory cost
(c) Cost of production=Works + Administration overhead
(d) Total cost=Cost of production + Selling and distribution overhead
The difference between the cost of sales and selling price represents profit or loss.

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 Problem
Ascertain the (a) Prime Cost, (b) Works Cost, (c) Cost of Production, (d) Total
Cost and cost per unit from the following mentioned figures in respect of out of 1000 units.
Items of cost Amount ₹.
Material 49000
Labour 20000
Direct expenses 5000
Factory rent 15000
Factory lighting 12000
Oil and water 4000
Office stationery 8000
Manager's salary 11000
Selling and distribution expenses 11000
Show all the elements of cost by using the chart and bar diagram.

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 Solution

Statement Of Cost / Cost Sheet

Items of Cost Total Cost ₹. Cost per Unit

₹. (1000 units)

Direct Material 49000 49

Direct Labour 20000 20
Direct Expenses 5000 5
PRIME COST 74000 74
Add: Factory Overhead
Factory rent 15000 15
Factory lighting 12000 12
Oil and water 4000 4
WORKS COST 105000 105
ADD Administration Overhead
Office stationery 8000 8
Manager's salary 11000 11
COST OF PRODUCTION 124000 124

Add: Selling and distribution Overhead

Selling and distribution expenses 11000 11
TOTAL COST 135000 135

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 Pie Chart

COST CHART
Direct Material Direct Labour
Direct Expences Factory Overhead
Administration Overhead Selling & Distribution Overhead

8%

14%
36%

23%

4% 15%

Bar Diagram

COST BAR DIAGRAM

Series 1
49,000

20,000

15,000

12,000

11,000

11,000
8,000
5,000

4,000

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 Conclusion
It was a fantastic learning experience for me while working on this project. This
project took me into the depth phases and gave me real insight into the total costing system
starting from classification of cost to ascertainment of total cost by preparing cost sheet.
In this assignment we learn the various types of cost mainly direct and indirect
cost i.e., prime cost and overhead classification of overhead elements of prime cost before that
we understood what is the meaning of cost and cost accounting, its nature and its objectives Why
we need it in the business. This assignment helped me to understand " Cost saved that is profit
made “. This made me familiar with the various types of cost and comes to know the need of
costing system at the time of fixation of price of a product. To understand properly we have
taken a data and ascertained total cost and cost per unit by preparing statement of cost followed
by pie chart.
It was due to our great instructor Prasanta sir and the project, I realised
"Knowledge is power". I enjoyed each and every phase of work feeling great for getting this
opportunity to acquire more knowledge and feels wonder for support and guidance of our
teacher.

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 BIBLIOGRAPHY
BOOKS
• R.K. Sharma, Shashi K. Gupta, Rahul Sharma; 2019: Kalyani publications: Cost Accounting:
2021: 2.50-2.51
• Shashi K. Gupta, Rahul Sharma;2020: NPH: Cost Accounting: 2018: 25-30
• Rajesh Kumar, DN Mishra, Rakesh Kr.; 2018: Cost Accounting: P. 145-156

WEBSITES
• https://www.zoho.com/books/guides/costsheet.html#:~:text=A%20cost%20sheet%20is%20a,by
%20referring%20to%20estimated%20costs.
• https://www.accountingtools.com/articles/what-is-a-cost-sheet.html
• https://www.economicsdiscussion.net/cost-accounting/cost-sheet/32626

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