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Cost accounting bba 3rd

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  • 1. ahsanullah.mohsen
  • 2. COST ACCOUNTING INTRODUCTION ahsanullah.mohsen
  • 3. 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 information to management for decision making ahsanullah.mohsen
  • 4. COST ACCOUNTING - INTRODUCTION Accounting for determination and control of costs.  COST ACCOUNTING: The Institute of Cost and Management Accountant, England (ICMA) has defined Cost Accounting as – “the process of accounting for the costs from the point at which expenditure incurred, to the establishment of its ultimate relationship with cost centers and cost units. In its widest sense, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned”. Cost Accounting = Costing + Cost Reporting + Cost Control. ahsanullah.mohsen
  • 5. COST - MEANING Cost means the amount of expenditure (actual or notional) incurred on, or attributable to, a given thing. ahsanullah.mohsen
  • 6. 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 ahsanullah.mohsen
  • 7. COST TERMINOLOGY: OST: Cost means the amount of expenditure incurred on a particular thing. OSTING: Costing means the process of ascertainment of costs. OST ACCOUNTING: The application of cost control methods and the ascertainment of the profitability of activities carried out or planned”. OST CONTROL: Cost control means the control of costs by management. Following are the aspects or stages of cost control. OB COSTING: It helps in finding out the cost of production of every order and thus helps in ahsanullah.mohsen ascertaining profit or loss made out on its execution. The management can judge the profitability
  • 8. ELEMENTS OF COST Element of cost Materials Direct Indirect Labour Direct ahsanullah.mohsen Expenses Indirect Direct Indirect
  • 9. 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. ahsanullah.mohsen
  • 10. EXAMPLES OF INDIRECT MATERIAL t factory level – lubricants, oil, consumables, etc. t office level – Printing & stationery, Brooms, Dusters, etc. t selling & dist. level – Packing materials, printing & stationery, etc. ahsanullah.mohsen
  • 11. LABOUR: The human effort required to convert the materials into finished product 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. (b) INDIRECT LABOUR: is one which cannot be conveniently identified or attributed wholly to a particular job, product or process. ahsanullah.mohsen
  • 12. EXAMPLES OF INDIRECT LABOUR t factory level – foremen’s salary, works manager’s salary, gate keeper’s salary,etc t office level – Accountant’s salary, GM’s salary, Manager’s salary, etc. t selling and dist.level – salesmen salaries, Logistics manager salary, etc. ahsanullah.mohsen
  • 13. 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. ahsanullah.mohsen
  • 14. Examples of other expenses t factory level – factory rent, factory insurance, lighting, etc. t office level – office rent, office insurance, office lighting, etc. t sales & dist.level – advertising, show room expenses like rent, insurance, etc. ahsanullah.mohsen
  • 15. 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 ahsanullah.mohsen
  • 16. 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.) ahsanullah.mohsen
  • 17. 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         ahsanullah.mohsen
  • 18. The concept of cost ut lay cost pportunity cost ost and expenses xpenses ahsanullah.mohsen
  • 19. COST CLASSIFICATION – ON THE BASIS OF 1) Nature 2) Function 3) Direct & indirect 4) Variability 5) Controllability 6) Normality 7) Financial accounting classification 8) Time 9) Planning and control 10) Managerial decision making ahsanullah.mohsen
  • 20. ON THE BASIS OF NATURE Materials Labour Expenses ahsanullah.mohsen
  • 21. ON THE BASIS OF FUNCTION anufacturing costs ommercial costs –S&D Costs N THE BASIS OF DIRECT AND INDIRECT irect costs ahsanullah.mohsen
  • 22. ON THE BASIS OF VARIABILITY Fixed costs Variable costs Semi variable costs ahsanullah.mohsen
  • 23. ON THE BASIS OF CONTROLLABILITY Controllable costs(power) Uncontrollable costs( power cost per unit) N THE BASIS OF NORMALITY ormal costs bnormal costs ahsanullah.mohsen
  • 24. ON THE BASIS OF FINANCIAL ACCOUNTS: Capital costs Revenue costs(all direct costs) Deferred revenue costs(unearned revenue) ahsanullah.mohsen
  • 25. ON THE BASIS OF TIME: Historical costs Pre determined costs N THE BASIS OF PLANNING AND CONTROL: udgeted costs ahsanullah.mohsen
  • 26. ON THE BASIS OF MANAGERIAL DECISION MAKING  Marginal costs  Out of pocket costs(cash out flow)  Sunk costs(one time payment like on software)  Imputed costs(alternative for implied cost),e.g. not paying rent on self owned property.  Opportunity costs  Replacement costs  Avoidable costs  Unavoidable costs  Relevant and irrelevant costs(making a building for 1.5b)  Differential costs(automated and manual production) ahsanullah.mohsen
  • 27. TERMS IN COST ACCOUNTING Cost unit Cost center( research and development) Cost estimation Cost ascertainment(from existing data) Cost allocation(assigning of a common cost to several cost objects) ahsanullah.mohsen
  • 28. METHODS OF COSTING 1. 2. 3. 4. 5. 6. 7. Job costing Contract costing Batch costing Process costing Unit costing Operating costing(uses for services) Operation costing(hybrid of job-order and process costing) 8. Multiple costing ahsanullah.mohsen
  • 29. TYPES OF COSTING 1. Uniform costing(number of firms in an industry) 2. Marginal costing 3. Standard costing 4. Historical costing(It is the ascertainment of costs after they have been incurred. This type of costing has limited utility.) 5. Absorption costing( both variable and fixed to operations, processes or product) ahsanullah.mohsen
  • 30. Direct Materials Opening stock of materials Add Purchases of materials Less Closing stock of materials (a) Materials consumed Direct Wages Direct Expenses Calculation of various cost ------ ------ PRIME COST Add Factory Overheads Factory rent, rates, taxes Fuel-power and water Lighting and Heating Indirect wages Depreciation, Repairs Salaries of Works Manager etc. Indirect Materials Drawing office and works office expenses Depreciation on factory land and building Less Scrap value Defective work Add Work in progress (opening) Less Work in progress (closing) ------ WORKS COST Add Office/Administration overheads Office rent, insurance, lighting, cleaning Office salaries, telephone, law and audit expenses General Manager’s salary Printing and stationery Maintenance, repairs, upkeep of office bldg Bank charges and miscellaneous 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 Showroom expenses, salesmen’s salaries & commission, bad debts, discounts, warehouse rent, carriage outwards, advertising, delivery expenses, samples and free gifts etc. COST OF SALES Add Net Profit or deduct net loss: ------ SALES ------
  • 31. Costs in financial statement ost of goods sold irect materials anufacture overheads ahsanullah.mohsen