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Introduction

The document provides an overview of cost accounting, defining key terms such as cost, costing, and cost accounting, and outlining its objectives, including cost ascertainment and managerial decision-making support. It also compares cost control and cost reduction, classifies costs based on various criteria, and explains different types of costs such as fixed, variable, and semi-variable. Additionally, it introduces concepts like cost units and cost centers, emphasizing their importance in the cost accounting process.

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Pranshu Agarwal
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Download as PPTX, PDF, TXT or read online on Scribd
2 views

Introduction

The document provides an overview of cost accounting, defining key terms such as cost, costing, and cost accounting, and outlining its objectives, including cost ascertainment and managerial decision-making support. It also compares cost control and cost reduction, classifies costs based on various criteria, and explains different types of costs such as fixed, variable, and semi-variable. Additionally, it introduces concepts like cost units and cost centers, emphasizing their importance in the cost accounting process.

Uploaded by

Pranshu Agarwal
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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COST ACCOUNTING

by

Dr. Kushal Dey


Basics
Cost: is a measurement in monetary terms of the amount of resources used
for the purpose of manufacturing goods or rendering of services. [This can be
Actual/Notional]
Costing: Techniques and process of ascertaining cost.

Cost Accounting: the process of accounting of cost which begins with


recording of income and expenditure and ends with presentation of
statements and reports.
Cost Accountancy: application of costing and cost accounting principles for
cost control and ascertainment of profitability. Presentation of relevant
information to the management.
Objectives of Cost Accounting

Ascertainment of Cost

Determination of Selling Price [ Exception: Competitive


Product, Controlled by statue]

Estimation of Profit (Product/ Service wise)

Cost Control and Cost Reduction

Assisting Managerial Decision Making


Comparative Analysis of Cost Control
and Cost Reduction
Basis Cost Control Cost Reduction

Meaning Cost will be reduced by using Cost will be reduced by


existing facilities replacing existing facilities with
better ones
Capital No capital expenditure Capital Expenditure is required
Expenditure required
Objective Achievement of predetermined Revice the predetermined
targets targets
Measures Preventive Measure Corrective Measure

Time Horizon Possible in Short Run Long Run

Approach Conservative Aggresive


Classification of Cost
• On the basis of Elements : a) Material b) Labour/Wages c) O.E.
• On the basis of Traceability:

a) Direct Cost: Cost which can be easily identified in the finished


product.
b) Indirect Cost: Which cannot be easily identified in the finished
product.
[Generally indirect cost are fixed in nature; All indirect costs are known as
Overheads]
• On the basis of Behaviour:

a) Fixed Cost
b) Variable Cost
c) Semi- Variable Cost
FIXED COST: This cost remains fixed irrespective of production level or
capacity level. It can change with time. Example: Factory Rent, Salary ,
Depreciation (SLM/WDV)

Types of Fixed Cost :


a) Committed Fixed Cost: cannot be avoided even if production is
suspended in short run. Eg: Factory Rent, Plant Depreciation.
b) Discretionary Fixed Cost: Can be avoided in the short run by
management decisions. Eg: Advertisement, R&D, AMC.

VARIABLE COST: This cost will change in the same proportion as that of
production. [V.C./ unit will always be same]
Semi- Variable Cost
• Linear Type: In this one portion of cost will be fixed and one portion will be variable.

Eg: Post-Paid Connection of Mobile Phone.


• Slab/ Step Type: Metro Rail Ticket.
Other Classification:
• On the basis of Normality :

a) Normal Cost: Which are expected tobe incurred under normal working conditions.

b) Abnormal Cost: Other than Normal cost. Charged to P/L. Eg: Fines and penalties

• On the basis of Countability:

a) Controllable Cost: can be controlled by the management

b) Uncontrollable cost: Cannot be controlled by the management.

• On the basis of Cash Flow:

a) Explicit Cost: expenses with cash outflow

b) Implicit Cost: expenses without cash outflow

• On the basis of Decision Making:

a) Relevant Cost: cost useful for decision making ; eg: V.C., Opportunity Cost

b) Irrelevant Cost: Not useful for decision making. E.g. : Sunk Cost, Absorbed Cost, etc.

Sunk Cost : These are the cost that are already incurred. Eg: Bought machinery.
Cost Unit
• It is a unit of product, service or time (or a combination) in relation to which costs may be
ascertained or expressed.
• Eg: Cost/ barrel of oil.
• It is usually the units of physical measurement like number, weight, area, volume, length,
time and value.
Cost Center
Cost Methods Vs Cost Techniques
Cost Sheet

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