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18 views

cost.1

Uploaded by

meee47812
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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You are on page 1/ 27

Dr.

CA Geeta Mahajan

1
Contents

Unit 1 : Introduction to Cost Accounting

Unit 2 : Accounting for Material

Unit 3: Machine per Hour Rate and preparation of Cost Sheet

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UNIT – 1: Introduction To Cost
Accounting

1. Meaning of Cost and Cost Accounting

2. Objectives of Cost Accounting

3. Cost Terminology

4. Classification of Costs and Calculation of Various Cost.

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1.
MEANINGS
COST - MEANING

Cost means the amount of


expenditure ( actual or notional)
incurred on, or attributable to, a
given thing.

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COST ACCOUNTING - MEANING

Cost accounting is
concerned with recording,
classifying and summarizing
costs for determination of
costs of products or
services, planning,
controlling and reducing
such costs and furnishing of
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information to management
2. OBJECTIVES OF COST
ACCOUNTING
 Ascertainment of costs
 Estimation of costs
 Cost control
 Cost reduction
 Determining selling price
 Facilitating preparation of
financial and other statement
 Providing basis for operating
policy
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3. COST TERMINOLOGY
 COST: Cost means the amount of expenditure
incurred on a particular thing.

 COSTING: Costing means the process of


ascertainment of costs.

 COST ACCOUNTING: The application of cost control


methods and the ascertainment of the profitability of
activities carried out or planned”.

 COST CONTROL: Cost control means the control of


costs by management. Following are the aspects or
stages of cost control.
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ELEMENTS OF COST

Element of cost

Materials Labour Expenses

Direct Indirect Direct Indirect Direct Indirect

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MATERIAL: The substance from which
the finished product is made is
known as material.
(a) DIRECT MATERIAL: is one which
can be directly or easily identified in
the product Eg: Timber in furniture,
Cloth in dress, etc.

(b) INDIRECT MATERIAL: one which


cannot be easily identified in the
product.
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EXAMPLES OF INDIRECT MATERIAL
At factory level – lubricants, oil,
consumables, etc.

At office level – Printing &


stationery, Brooms, Dusters, etc.

At selling & dist. level – Packing


materials, printing & stationery,
etc.
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is called labour.

(a) DIRECT LABOUR:


is one which can be
conveniently identified or attributed
wholly to a particular job, product or
process.
Eg:wages paid to carpenter, fees paid to
tailor,etc.

is one which cannot be


(b) INDIRECT LABOUR:
conveniently identified or attributed
wholly to a particular job, product or
process.

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EXAMPLES OF INDIRECT LABOUR
At factory level – foremen’s salary,
works manager’s salary, gate
keeper’s salary,etc

At office level – Accountant’s salary,


GM’s salary, Manager’s salary, etc.

At selling and dist.level – salesmen


salaries, Logistics manager salary,
etc.
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OTHER EXPENSES: are those expenses
other than materials and labour.

DIRECT EXPENSES: are those expenses


which can be directly allocated to
particular job, process or product. Eg :
Excise duty, royalty, special hire
charges,etc.

INDIRECT EXPENSES: are those expenses


which cannot be directly allocated to
particular job, process or product.

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Examples of other expenses
At factory level : factory rent,
factory insurance, lighting, etc.

At office level : office rent, office


insurance, office lighting, etc.

At sales & dist.level : advertising,


show room expenses like rent,
insurance, etc.
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BASIC COST
SHEET
DIRECT MATERIAL ………………………………..
DIRECT LABOUR ………………………………
DIRECT EXPENSES …………………………………

PRIME COST ………………………………….


FACTORY OVERHEADS …………………………………..

FACTORY COST
OFFICE OVERHEADS

COST OF PRODUCTION
SELL & DIST OVERHEADS

COST OF SALES ………………………………


PROFIT
……………………………….

SALES

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COST SHEET - ADVANCED

OPENING STOCK OF RAW MATERIALS


+PURCHASES
+CARRIAGE INWARDS
-CLOSING STOCK OF RAW MATERIALS

VALUE OF MATERIALS CONSUMED


+DIRECT WAGES
+DIRECT EXPENSES

PRIME COST
+FACTORY OVERHEADS
+OPENING STOCK OF WIP
-CLOSING STOCK OF WIP

FACTORY COST

(CONT.)

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FACTORY COST

+ADMINISTRATIVE OVERHEADS

COST OF PRODUCTION
+OPENING STOCK OF FINISHED GOODS
-CLOSING STOCK OF FINISHED GOODS

COST OF GOODS SOLD


+SELL. & DIST. OVERHEADS

COST OF SALES
+PROFIT

SALES

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4. COST CLASSIFICATION
Classification On basis of :
Nature
 Function
 Direct & indirect
 Variability
 Controllability
 Normality
 Financial accounting classification
 Time
 Planning and control
 Managerial decision making

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ON THE BASIS OF NATURE

 Materials

 Labour

 Expenses

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ON THE BASIS OF FUNCTION

 Manufacturing costs
 Commercial costs – ADM and S&D
Costs

ON THE BASIS OF DIRECT AND


INDIRECT
 Direct costs
 Indirect costs

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ON THE BASIS OF VARIABILITY

 Fixed costs

 Variable costs

 Semi variable costs

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ON THE BASIS OF CONTROLLABILITY
 Controllable costs

 Uncontrollable costs

ON THE BASIS OF NORMALITY


 Normal costs

 Abnormal costs

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ON THE BASIS OF FINANCIAL
ACCOUNTS:

 Capital costs

 Revenue costs

 Deferred revenue costs

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ON THE BASIS OF TIME:
 Historical costs

 Pre determined costs

ON THE BASIS OF PLANNING AND


CONTROL:
Budgeted costs

Standard costs

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ON THE BASIS OF MANAGERIAL
DECISION MAKING

 Marginal costs
 Out of pocket costs
 Sunk costs
 Imputed costs
 Opportunity costs
 Replacement costs
 Avoidable costs
 Unavoidable costs
 Relevant and irrelevant costs
 Differential costs
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TERMS IN COST ACCOUNTING
 Cost unit
 Cost centre
 Cost estimation
 Cost ascertainment
 Cost allocation
 Cost apportionment
 Cost reduction
 Cost control

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METHODS OF COSTING
 Job costing
 Contract costing
 Batch costing
 Process costing
 Unit costing
 Operating costing
 Operation costing
 Multiple costing

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