COST ACCOUNTING CONCEPTSSSSS

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WHAT IS COST ACCOUNTING AND HOW IT IS MEASURED

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COST ACCOUNTING CONCEPTSSSSS

  1. 1. Cost sheet is a statement prepared to show the different elements of cost. Preparation of cost sheet is one of the functions of cost accounting. WHAT IS COST ACCOUNTING
  2. 2. 1. Cost accounts are important part of financial accounts. 2. The knowledge of per unit cost of production or service is obtained from cost accounts 3. Detail records are maintained for materials , labour and expense in these accounts 4. Adequate control on material, labour and expenses is maintained. 5. Cost of incomplete work is also known from these accounts CHARACTERISTIC OF COST ACCOUNTS
  3. 3. 1. To Know The Cost : The main object of cost accounting is to ascertain the cost of production correctly. Cost of two periods can be compared, selling price of items produced is fixed and tender or quotation price can be ascertained with the help of cost accounting. 2. To Control The Cost : The cost of production can be controlled by cost accounts. Every producer wants that his real cost should be more than its standard cost. If real cost is higher, efforts are made it to control it. 3. To Provide reliable cost data : To main objects of cost accounting is to provide reliable data for controlling business activities and for ascertaining cost of production. OBJECTIVE OF COST ACCOUNTS
  4. 4. 1. Historical Cost : Under this method cost is ascertained on the basis of actual expenses incurred after the production is complete. To ascertain the price of a tender or quotation , actual cost figures of previous year are used as a basis. 2. Standard Cost : The standard cost of a commodity or a service is estimated before actual production. After the production standard cost is compared with actual cost of production and the amount and causes of variance are known. On the basis of actual costs necessary adjustments are made in standard cost and future standard costs are fixed. 3. Marginal Costing : In this technique only such expenses are included in cost which are directly related to production that is which are variable to quantity of production. no part of fixed expenses is included in this cost. if the production of the factory is increased in future within the production capacity, the additional cost of production is called marginal cost. TECHNIQUES OF COSTING
  5. 5. 1. Single Costing : This method is also known as output costing or unit costing. This method is used in in such industries where only one item is produced in large quantities during the whole year EXAMPLES cement, flour, sugar and coal. Under this method cost per tonne is computed. 2. Operating Costing : In industries where no commodity is produced but public utility service is provided. EXAMPLES railways, bus transport, and electric supply. 3. Process Costing : In the industries where the production is completed through many processes or where the production may be sold after completion of one or a few or all processes, this method of costing is used. EXAMPLES chemical , textile, and oil industries. 4. Departmental Costing : When in a factory more than one items are manufactured , it is necessary to ascertain the cost of each item separately. For this purpose total expenses are divided between various department on some fair basis and cost per unit of each department is ascertained. EXAMPLES almirahs , boxes, bed, and tables. METHODS OF COSTING
  6. 6. For the success of cost accounting system the following matters are necessary 1. Necessary information should be available to the department quickly and substantially. 2. There must be cooperation in different production department. 3. The organization of production work must be fully scientific. 4. Accounting work is done by qualified,, honest and efficient persons. 5. The management of business is honest, and of good character. ESSENTIAL FEATURE FOR THE SUCCESS OF COST ACCOUNTING
  7. 7. ELEMENTS OF COSTS ELEMENTS OF COST LABOUR MATERIALS EXPENSES DIRECT MATERIAL INDIRECT MATERIAL DIRECT COST DIRECT LABOUR INDIRECT LABOUR DIRECT EXPENSES INDIRECT EXPENSES INDIRECT COST

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