Module No.

1: Introduction to cost accounting

COST
Meaning: cost means the sum total of expenses incurred on manufacturing of a product or
service. The general concept of Cost which is most widely used is the money cost of
production. Another concept of Cost is the real cost according to Marshall. Again
Opportunity Cost concept is there. Opportunity Cost means the sacrifice made for not
utilising the other alternatives.

Definitions

According to Oxford Dictionary, “Cost is the price paid for something”.

ICMA London defines the term ‘Cost’ as, “the amount of expenditure (Actual or notional)
incurred on or attributable to a specified thing or activity”.

Anthony and Welsoh defines, “Cost is a measurement in monetary terms, of the amount of
resources used for some purposes”.

Costing
It is the process, technique and procedure of ascertaining the costs. It includes all the
principles, rules and regulations of calculating the costs.

Definitions

ICMA, London defines Costing as, “the techniques and process of ascertaining costs.”

Harold James defines, “Costing is the proper allocation of expenditure whereby reliable cost
may be ascertained and suitably presented to afford guidance to the producers in control of
their business”.

Cost Accounting
Cost Accounting is the process of accounting for costs. It begins with the recording of income
and expenditure and ends with the preparation of periodical statements.

Definitions

Kohler defines Cost Accounting as, “that branch of accounting dealing with the
classification, recording, allocation, summarisation and reporting of current and prospective
costs”.

I.C.M.A. London defines Cost Accounting as, “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 centres and cost units”. In its widest usage, it embraces the preparation
of statistical data, the application of the cost control methods and the ascertainment of the
profitability of activities carried out or planned.

 Limitations of Financial Accounting

 It shows only overall performance
 It provides only historical data
 It is static in nature
  It fails to provide information for price fixation
 It fails to control cost
 No proper classification of costs
 It does not provide proper system for performance appraisal
 It fails to analyse losses
 It does not provide a basis of cost comparison
 It does not make use of control techniques
 If fails to ascertain break-even point

 OBJECTIVES OF COST ACCOUNTING

I. Ascertainment of cost:
This is the primary objective of Cost accounting. For the purpose of ascertaining the cost
of a product, process or operation, it is necessary to record the expenses incurred, classify
them properly and then allocate or apportion it amongst the respective products, processes
or departments for calculating total cost of each of these. If there is only one product, cost
per unit can be found out by dividing the total expenditure by the total number of units
produced. But if there are number of products manufactured, then the cost is to be split up
between the various products.

II. Control of Cost:

Cost control aims at improving efficiency by controlling and reducing cost. Cost control is
exercised at different stages in a factory, viz. acquisition of materials, recruiting and
deployment of labour force during production process and so on. As such, we have material
cost control, labour cost control, production control, quality control and so on. Cost control
is becoming more and more important tool because of growing competition.

III. Determination of Selling Price:

Cost accounting provides information on the basis of which selling prices of products or
services may be fixed. Total cost of production constitutes the basis on which selling price
is fixed by adding a margin of profit. Cost accounting furnishes both the total cost of
production as well as cost incurred at each and every stage of production.

IV. To provide a basis for Operating Policy:

Cost data to a great extent helps the management in formulating the policies of a business
and in decision-making. Hence, availability of cost data is a must for all levels of
management. Some of the decisions which are based on cost data are; make or buy decision,
manufacturing by mechanization or automation, whether to close or continue operations in
spite of losses, selling below cost decision, introduction of new products etc.

V. Frequent preparation of Accounts and Other Reports:

Every concern relies upon the reports on cost data to know the level of efficiency regarding
purchase, production, sales and operation results. Financial accounts provide information
only at the end of the year because value of closing stock is available at the end of the year.
But cost accounts provide the value of closing stock at frequent intervals by adopting,
“continuous stock verification “system.

VI. To provide data for Cost Reduction:

For survival in the world of competition, it is necessary to keep the prices of products or
services as low as possible. It is only possible when cost of production is less. So, the
management has to make continuous efforts to reduce the cost. To provide data for cost
 reduction is one of the important objectives of the cost accounting. It helps the management
in finding out improved methods to reduce costs.

VII. Preparation of Cost Estimates:

Many times, it is required to take new jobs by the manufacturing concern or introduce new
product as per customer’s requirement. Before manufacturing cost estimates are to be
made. Preparation of cost estimates is also one of the important objectives of Cost
Accounting.

VIII. Standards for Measuring Efficiency:

For measuring the performance of various business activities, management requires some
base for evaluating the performance. Standard Cost is one of the means for evaluating the
performance. So development of Standard Cost is also important objective of Cost
Accounting.

 IMPORTANCE / USES / ADVANTAGES OF COST ACCOUNTING

As seen earlier, Cost Accounting is a tool available with the management for making decisions
as regards sales, purchases, production, finance, inventory control etc. If the costing system is
sound, it provides the following benefits to the management:

I. Helps in Decision-Making:
Decision-making is concerned with choosing between alternative courses of action. An
important factor involved in the choice is the financial implication of the available
alternatives. Cost accounting is a decision-making tool. It provides suitable cost data and
other related information to enable management to evaluate alternative courses of action.

II. Supplies detailed Cost Information:

Cost accounting classifies cost and revenue by every possible division of the business and
supplies management with detailed and regular cost information. Such information is useful
for ascertaining the cost of product, process, department, division or unit of service.

III. Guides in Price Fixation:

Cost is one of the most important factors to be considered while fixing prices. It assists
management in fixation of selling price both in normal conditions and for the period of
depression. With the help of costing only, it is possible to prepare estimates, tenders and
quotations.

IV. It reveals Operating Efficiency:

Cost information reveals, profitable and unprofitable activities, so that steps may be taken
to reduce or eliminate wastages and inefficiencies occurring in any form such as idle time,
underutilisation of plant capacity, spoilage of materials etc.

V. It facilitates Planning:
It enables the management to know future costs so that appropriate plans and decisions can
be made.

VI. It reveals Idle Capacity:

A concern may not be working to full capacity due to reasons such as shortage of demand,
machine breakdown or other bottlenecks in production. A cost accounting system can easily
 find out the cost of idle capacity so that the management may take immediate steps to
improve the position.

VII. Helps in Inventory Control:

Perpetual inventory system which is an integral part cost accounting helps in the
preparation of interim profit and loss account. Other inventory control techniques like ABC
Analysis, Level setting etc. are also used in cost accounting.

VIII. Helps in Cost Control:

Cost accounting helps in controlling costs with special techniques like standard costing and
budgetary control.

IX. Helps in Cost Reduction:

It helps in the introduction of a cost reduction program and finding out new and improved
ways to reduce costs.

X. Checks the Accuracy of Financial Accounts:

Cost accounting provides a reliable check on the accuracy of financial accounts with the
help of reconciliation between the two at the end of the accounting period.

XI. It facilitates Cost Comparison:

Cost accounting enables management to make cost comparison of jobs, products,
departments, sales territories etc. within the same concern. It provides inter-firm cost
comparison also.

XII. It prevents Frauds and Manipulation:

It helps in preventing manipulation and frauds through cost audit system. Thus, reliable
cost data can be furnished to management and others.

 DIFFERENCE BETWEEN FINANCIAL ACCOUNTING AND COST

ACCOUNTING

SL NO BASIS FINANCIAL ACCOUNTING COST ACCOUNTING

It covers accounts of whole business relating It covers the transactions

to all commercial transactions. relating to certain specific
1. Coverage
activities only e.g. production,
sales, services etc.

The purpose of Financial Accounting is The purpose of Cost

Purpose external reporting mainly to owners,
creditors, tax authorities, Government and Accounting is the internal
2.
prospective investors. reporting i.e. to the
management of every business.

These accounts have to be prepared These accounts are generally

according to the legal requirements of prepared to meet the
Statutory Requirement Companies Act and Income-Tax Act. requirements of the
management. But now it has
3.
been made obligatory to keep
cost records under the
Companies Act.
 Recording of It records, classifies and analyses the It records the expenditure in an
transactions in a subjective manner i.e. objective manner i.e. according
4. transactions according to the nature of expenditure. to the purposes for which cost
are incurred.

Financial Accounts record only historical Cost Accounts record both

Nature of costs
costs. historical and estimated costs.
5.

Nature of expenses In Financial Accounts expenses are recorded In Cost Accounts, costs are
in totals. expressed by proper analysis
6. incurred and classification in order to
find out cost per unit.

Financial Accounts disclose profit for the Cost Accounts show the
Analysis of cost and entire business as a whole. It does not show profitability, or otherwise of
7. the figures of cost and profit for individual each product, process or
profit products, departments and processes etc. operation so as to reveal the
areas of profitability.

Financial reports are prepared periodically, Cost Accounting is a

Duration of Reporting usually on an annual basis. continuous process and
8. reporting may be daily, weekly,
monthly etc.

It does not make use of any control It makes use of some important
techniques. It does not control material and control techniques such as
labour cost. Standard costing, Marginal
costing,

Budgetary Control etc. It

9. Control aspect exercises control over material
cost by ABC Analysis, level
setting, EOQ etc. and over
labour cost by minimizing idle
time, overtime etc.

Financial Accounting prepares general Cost Accounting

purpose statements like Profit and Loss A/c
and Balance Sheet. generates special

Types of statements purpose statements and

10. prepared reports like Reports of

Loss of Materials, Idle

Time Reports, variance

Report etc.

It fails to guide the formulation of pricing It provides adequate data for

Pricing
policy. formulating pricing policy.
11.

Stock is valued at cost price or market price, Stock is always valued at cost
12. Valuation of Stock
whichever is less. price.
 Evaluation of Efficiency The information provided by Financial The cost data helps in
13. Accounts is not sufficient to evaluate the evaluating the efficiency of the
efficiency of the business. business.

Costs are not broken up according to their The costs are analysed
Break-up of costs nature and functions. according to their nature and
14. functions for further analysis
and control.

Under Financial Accounting Inter-firm or Under Cost Accounting

Inter/Intra Firm Intra-firm comparison cannot be made.
it is possible to make
15.
comparison Inter-firm and Intra-firm
comparison.

There is no system of classification of costs Since there is classification of

into fixed and variable or controllable and costs into controllable and
uncontrollable. uncontrollable costs, the
Classification of Costs management can reduce the
16. controllable costs. The
distinction between fixed costs
and variable costs also helps
the management to take vital
decisions.

In Financial Accounting reference can be In Cost Accounting no such

Reference made in case of difficulty to the company reference is possible. Guidance
17. law, case decisions and to business ethics. can be had only from a body of
conventions followed by cost
accountants.

Financial Accounts deal with only monetary Cost Accounts deal with
transactions and it deals only with actual monetary as well as
Dealing of facts and figures nonmonetary transactions and
18. it deals partly with the facts
Transactions.
and figures and partly with
estimates.

 COST ACCOUNTING TERMINOLOGIES

Cost object:
Cost object is the technical name for a product or a service, a project, a department or any
activity to which a cost relates. Therefore the term cost should always be linked with a cost
object to be more meaningful. Establishing a relevant cost object is very crucial for a sound
costing system. The Cost object could be defined broadly or narrowly.

At a broader level a cost object may be named as a Cost Centre, whereas at a lowermost
level it may be called as a Cost Unit.

Cost Unit:
Cost Unit is a quantitative unit of product or service or time in relation to which costs are
ascertained or expressed. Cost Units differ from industry to industry. The unit selected
should be the most natural to the business and accepted by all concerned.

For Example, in a cement factory, the cost per tonne of cement is found out, in a cloth mill,
the cost per meter is ascertained in case of machine, the cost per machine hour is found out
etc. Thus, here tonne, meter and machine hour become the cost units. Hence, we can say
that a cost unit is nothing but a unit of measurement of cost.
In case of a service unit, it is difficult to find out and decide a suitable cost unit. For
example, in case of transport undertaking, the costs may be either related to the distance
travelled in kilometre, or the weight carried i.e. tones. While selecting proper cost unit for
the transport both factors i.e. distance and weight should be considered. Hence, tonne
kilometre or passenger kilometre will be a proper unit.

A Cost Unit may be classified into,

A. Single Cost Unit
In which only one characteristics is used in measurement of cost e.g. per kilometre, per
litre, per passenger, etc.

B. Composite Cost unit

In which two characteristics are used simultaneously in measurement of cost e.g. per
tonne-kilometre, per passenger-kilometre, per kilowatt-hour, per patient-bed, etc.

Examples of cost units are given below

Industry / Product Cost Unit

Automobile Number of vehicles

Cable Metres / kilometres

Cement Tonne

Chemicals / Fertilizers Litre / Kilogram / tonne

Gas Cubic Metre

Power - Electricity Kilowatt Hour

Transport Tonne-Kilometre, Passenger-Kilometre

Hospital Patient Day

Hotel Bed Night

Education Student year

Telecom Number of Calls

BPO Service Accounts handled

Professional Service Chargeable Hours

Cost Centre
 For the purposes of administrative control, the entire organisation is divided into a
number of sub-units which may be in the form of departments, branches, processes for
ascertaining and controlling costs. Because, the costs incurred will be charged initially
to these sub-units which are known as Cost Centres. A Cost
Centre is therefore, a sub-unit of the organisation for which costs may be collected
separately and used for cost ascertainment and control.

CIMA, defined cost centre as “a location, person or item of equipment (or group of
these) for which costs may be ascertained and used for the purposes of control”.

Types of Cost Centres

 Production Cost Centre

It is a cost centre connected with production i.e. machine shop, welding shop, assembly
shop etc. The manufacturing and non-manufacturing costs are charged to product cost
centres.

 Service Cost Centre

A Service Cost Centre is one which provides services to the other cost centres. Only
non-manufacturing costs are charged to service cost centre. Examples of service cost
centre are canteen, machinery maintenance, office service etc.

 Personal Cost Centre

Personal Cost Centre consists of a person or group of persons. Personal Cost Centre
follows the organisational structure of a factory. Under this type of cost centre, costs
are analysed and accumulated by works manager, sales Manager, Store-keeper,
Foreman etc.

 Impersonal Cost Centre

It consists of a location or item of equipment. A Cost centre relating to location may
represent a region of sales, a warehouse or storeroom. Cost centre relating to an item of
equipment could be a machine or group of machines.

 Operations Cost Centre

It is a cost centre which consists of machines/ persons carrying out similar operations
i.e. machines and operations engaged in welding, turning or matching.

 Process Cost Centre

It is a cost centre which consists of a specific process or continuous sequence of
operations.

Cost Control
Cost Control is defined as the regulation by executive action of the costs of operating
an undertaking, particularly where such action is guided by Cost Accounting.
Cost control involves the following steps and covers the various facets of the
management:

I. Planning: First step in cost control is establishing plans / targets. The

plan/target may be in the form of budgets, standards, estimates and even past
actual may be expressed in physical as well as monetary terms. These serves as
yardsticks by which the planned objective can be assessed.
 II. Communication: The plan and the policy laid down by the management are
made known to all those responsible for carrying them out. Communication is
established in two directions; directives are issued by higher level of
management to the lower level for compliance and the lower level executives
report performances to the higher level.

III. Motivation: The plan is given effect to and performances starts. The
performance is evaluated, costs are ascertained and information about results
achieved are collected and reported. The fact that costs are being complied for
measuring performances acts as a motivating force and makes individuals
endeavour to better their performances.

IV. Appraisal and Reporting: The actual performance is compared with the
predetermined plan and variances, i.e. deviations from the plan are analysed as
to their causes. The variances are reported to the proper level of management.

V. Decision Making: The variances are reviewed and decisions taken. Corrective
actions and remedial measures or revision of the target, as required, are taken.

Cost Reduction
Cost reduction means maximization of profits by reducing cost through economics and
savings in costs of manufacture, administration, selling and distribution.

Cost reduction may be defined as the real and permanent reduction in the unit costs of
goods manufactured or services rendered without impairing their suitability for the use
intended. As will be seen from the definition, the reduction in costs should be real and
permanent.
Reductions due to windfalls, fortuities receipts, changes in government policy like
reduction in taxes or duties, or due to temporary measures taken for tiding over the financial
difficulties do not strictly come under the purview of cost reduction. At the same time a
programme of cost reduction should in no way affect the quality of the products nor should
it lower the standards of performance of the business.

Broadly speaking reduction in cost per unit of production may be affected in two ways viz.
o By reducing expenditure, the volume of output remaining constant, and
o By increasing productivity, i.e., by increasing volume of output and the level of
expenditure remains unchanged.
These aspects of cost reduction are closely linked and they act together - there may be
a reduction in the expenditure and the same time, an increase in productivity.

 Cost Control vs. Cost Reduction

Cost Control Cost Reduction

1. Cost Control represents efforts 1. Cost Reduction represents the achievement in

made towards achieving target or reduction of cost.
goal.
2. The process of Cost Control is to set 2. Cost Reduction is not concern with
up a target, ascertain the actual maintenance of performance according to
performance and compare it with standard.
 the target, investigate the variances,
and take remedial measures.
3. Cost Control assumes the existence 3. Cost Reduction assumes the existence of
of standards or norms which are not concealed potential savings in standards or
challenged. norms which are therefore subjected to a
constant challenge with a view to improvement
by bringing out savings.
4. Cost Control is a preventive 4. Cost Reduction is a corrective function. It
function. Costs are optimized operates even when an efficient cost control
before they are incurred. system exists. There is room for reduction in
the achieved costs under controlled conditions.
5. Cost Control lacks dynamic 5. Cost Reduction is a continuous process of
approach. analysis by various methods of all the factors
affecting costs, efforts and functions in an
organization. The main stress is upon the why
of a thing and the aim is to have continual
economy in costs.

 LIMITATIONS OF COST ACCOUNTING

Besides the various advantages of Cost Accounting system, it suffers from certain limitations
which are as follows:

I. Expensive:
Highly paid cost accountants and the organisation of costing system involve additional
expenditure. However, before installing it, care must be taken to ensure that the benefits derived
are more than the investment made on this system of accounting.

II. More Complex:

Cost Accounting system involves number of steps in ascertaining cost such as collection and
classification of expenses, allocation and apportionment of expenses etc. These steps are
considered as complicated. Again a system requires several forms and documents in preparing
the reports. This will tend to delay in the preparation of accounts.

III. Limited Applicability:

All business enterprises cannot make use of a single method and technique of costing. It all
depends upon the nature of the business and type of product manufactured by it. If a wrong
technique and method is used, it misleads the result of the business.

IV. Not applicable to Small Concerns:

A Cost Accounting system is applicable only to a large sized business and not suitable for small
sized business because it is more expensive.

V. Lack of Uniformity:
This is the greatest limitation of Cost Accounting system. It fails to conform any uniform
procedure. It is possible that two equally competent cost accountants may arrive at different
results from the same information. So it is said that all cost accounting results are mere
estimates. Hence, it is not reliable.

VI. Lack of Accuracy:

 Accuracy in Cost Accounting is relative. Certain assumptions are always made while
ascertaining cost to suit a particular situation.

VII. Confusion regarding Non-Cost Items:

There may be confusion regarding non-cost items e.g. interest on capital, cash discount etc.
should be included or to be excluded from cost accounts.

VIII. Not useful for handling futuristic situations:

The contribution of Cost Accounting for handling futuristic situations has not been much. For
example, cost accounting has not evolved any tool so far for handling inflationary situation.

IX. Failure in many cases:

It is argued that the adoption of costing system failed to produce the desired results in many
cases and so it is defective.

X. It fails in considering social obligations:

Cost Accounting fails to take into account the social obligations of the business. In other words,
social accounting is outside the purview of the cost accounts.

METHODS OF COSTING
The fundamental principles of cost ascertainment remain the same but the methods of analysing
and presenting theses costs differ from industry to industry. Broadly, there are two main
methods used to determine costs viz. Job Cost Method and Process Cost Method.
However, the different methods of costing can be further bifurcated and can be explained in
detail as follows:

JOB COSTING

This method is used for tracing specific costs to individual jobs especially where production is
not highly repetitive. The cost ascertainment is for specific jobs or orders which are not
comparable with each other. Job costing is commonly used in printing press, automobile
garage, repair shops, etc.

CONTRACT COSTING

Principally, there is no difference between job and contract costing but it is convenient to
prepare and maintain separate contract accounts when large scale contracts are carried out at
different sites like in the case of building construction, ship builders, etc. A contract is a big
job while a job is a small contract.

BATCH COSTING

In this method of costing, a batch of similar products is considered as one job and the cost of
the complete batch is ascertained. Thereafter, the cost of each unit is determined.
Pharmaceutical industries, brick manufacturing companies generally use this method.

PROCESS COSTING

If a product passes through different stages, each distinct and well-defined, with the output of
one process becoming the input for the other, it is desirable to know the cost of production at
each stage. Process costing is employed to ascertain the same. The system of costing is suitable
for the extractive industries, e.g., chemical manufacture, paints, foods, explosives, soap making
etc.

OPERATION COSTING

The procedure of operation costing is broadly the same as for process costing except that cost
unit is an operation instead of a process. For large undertakings involving a number of
operations, it is important to compute the cost of each operation. For example, the
manufacturing of handles for bicycles will make use of operation costing as it involves many
operations like cutting steel sheets into proper strips, moulding, machining and finally
polishing.

UNIT COSTING (OUTPUT COSTING OR SINGLE COSTING)

Under this method of costing, cost of a single product produced by a continuous manufacturing
process is computed in addition to amount of each element of cost. The method is suitable in
industries such as flour mills, paper mills, cement manufacturing etc.

OPERATING COSTING

Also known as service costing, this method is employed to ascertain the cost of services
rendered like transport companies, electricity companies, or railway companies. The total
expenses regarding operation are divided by the units as may be appropriate (e.g., total number
of passenger-kms. in case of bus company) and cost per unit of service is calculated.

MULTIPLE COSTING (COMPOSITE COSTING)

Application of more than one method of costing for the same product is done under multiple
costing. Herein, the costs of different sections of production are combined after finding out the
cost of every part manufactured. It is applicable where a product comprises of many assembled
parts, e.g., motor cars, engines, machine tools, typewriters, radios, cycles etc.

METHODS OF COSTING APPLICATIONS

1. Job costing Printing press, interior decorations and painting

2. Contract costing Construction of buildings, dams, roads etc..,

3. Batch costing Readymade garments, toys, shoes manufacturing

4. Process costing Chemical works, refineries, sugar mills

5. Operation costing Chemical works, refineries, sugar mills ***

6. Single / output / unit costing Mines, quarries, steel production, brick kilns

7. Operating or service costing Transport, electricity, hotels, hospitals, cinema

8. Multiple or composite costing Scooters and locomotive works, refrigerators

 TECHNIQUES OF COSTING
In addition to the above stated methods, the following techniques of costing are used by
management for the purpose of managerial decision making and controlling costs.

MARGINAL COSTING

Marginal costing has been defined as ‗the accounting system in which variable costs are
charged to cost units and the fixed costs of the period are written-off in full against the
aggregate contribution. ‘Fixed overheads are excluded on the ground that in cases where
production varies, the inclusion of fixed overheads may give misleading results.

DIRECT COSTING

The practice of charging all direct costs to operation, process or products, excluding all indirect
costs to be written off against profits in the period in which they arise, is referred to as direct
costing. Direct costing technique considers some fixed costs as direct costs in appropriate
circumstances, thus differentiating it from marginal costing.

ABSORPTION COSTING

The Institute of Cost and Management Accountant of India defines absorption costing as ―a
method of costing by which all direct costs and applicable overheads are charged in products
or cost centres for finding out the total cost of production. Absorbed cost includes production
cost as well as administrative and other costs.
Absorption costing does not make any difference between variable and fixed cost in the
calculation of profits. It charges all costs, both variable and fixed, to operations, products or
processes.

UNIFORM COSTING

Uniform costing refers to a technique of costing wherein standardised principles and methods
of cost accounting are employed by a number of different companies and firms, thus,
facilitating inter-firm comparisons, establishment of realistic pricing policies etc.

ACTIVITY BASED COSTING

The Chartered Institute of Management Accountants (CIMA), London, defines it as a technique

of cost attribution to cost units on the basis of benefits received from indirect activities e.g.
ordering, setting up, and assuring quality. In other words, it is a method of assigning
organisation‘s resource costs through activities (called cost drivers) to the products and
services. It is generally used by a company having products that differ in volume and
complexity of production for the purpose of apportionment of overhead costs.

PROFORMA COST SHEET

PARTICULARS AMOUN AMOUN
T T

Opening Stock of Raw Material ***

Add: Purchase of Raw materials ***

Add: Purchase Expenses ***

Less: Closing stock of Raw Materials ***

1.Raw Materials Consumed ***

2.Direct Wages (Labour) ***

3.Direct Charges ***

PRIME COST ***

Add :- Factory Overheads:

Factory Rent ***

Factory Power ***

Indirect Material ***

Indirect Wages ***

Supervisor Salary ***

Drawing Office Salary ***

Factory Insurance ***

Factory Asset Depreciation ***

Less : sale of scrap

WORKS COST INCURRED / MANUFACTURING COST ***

Add: Opening Stock of WIP ***

Less: Closing Stock of WIP ***

WORKS COST ***

Add:- Administration Overheads:-

Office Rent ***

Asset Depreciation ***

General Charges ***

Audit Fees ***

Bank Charges ***

Counting house Salary ***

Other Office Expenses ***

COST OF PRODUCTION ***

Add: Opening stock of Finished Goods ***

Less: Closing stock of Finished Goods ***

COST OF GOODS SOLD ***

Add:- Selling and Distribution Overheads:-

Sales man Commission ***

Sales man salary ***

Traveling Expenses ***

Advertisement ***

Delivery man expenses ***

Sales Tax ***

Bad Debts ***

COST OF SALES / TOTAL COST ***

ADD: PROFIT (BALANCING FIGURE) ***

SALES ***