Management accounting produces weekly or monthly reports that cover internal issues. These reports include various stats, available monetary fund, returns generated on sales, piled up orders, amount of payment to be generated, remaining debts, stats of raw materials.
Objectives and Functions of costing MIS:
1) Cost control and Cost Reduction:
2) Guide to Business Policy:
3) Determination of Selling Price:
4) Fixing profit per products.
Importance of costing MIS
Detailed Cost information
Help in price fixation
Reveals profitable or non profitable activity
Reveals idle capacity
Helps in decision making
Helps in controlling costs
Helps in inventory control
A) Classification into Direct and Indirect Costs:
direct costs: these are those costs which are incurred
for and identified with a particular cost unit.
Indirect costs: these costs cannot be identified with the
particular cost unit.
B) Classified into fixed and variable costs:
semi variable or semi fixed costs:
C) classification into product costs and period costs:
product costs: these are those costs which are necessary for
production and which will not be incurred if there is no
Period costs: these costs are not necessary for production but
incurred even if there is no production.
Example: showroom rent, salary of supervisor.
Cost divided in to 3 parts.
1) Material cost: divided into 2 parts.
a) direct material: cost is that which can be conveniently identified
with and allocated to cost units. Direct material generally become
a part of the finished products.
Example: leather in shoes, steel in machines.
B) indirect material: are those materials which cannot be
conveniently identified with individual cost units.
Example: lubricant oil, small tools, nuts and bolts.
2) Labour cost:
a) direct labour cost:
b) indirect labour cost
example: supervisor, clerk, watchmen.
3) Expenses cost:
a) direct expenses:
b) indirect expenses:
Example: rent, depreciation, advertising.
1) factory overhead.
a) indirect material+ indirect labour + indirect expenses of
2) office overhead.
b) indirect material+ indirect labour + indirect expenses of office.
3) selling and distribution overhead.
c) indirect material+ indirect labour + indirect expenses of
Examples of Indirect material
At factory level – lubricants, oil, etc.
At office level – Printing & stationery, Dusters, etc.
At selling & dist. level – Packing materials, printing & stationery, etc.
Examples of Indirect labour
At factory level – Production managers salary, security ’s salary, store
At office level – Administrative staff s salary, MD , Accounts
department and salary, etc.
At selling and dist.level – salesmen salaries, Logistics manager salary,
Examples of Indirect expenses
At factory level – factory rent, factory insurance, lighting,
spares parts etc.
At office level – office rent, office insurance, office lighting,
printing and stationary etc.
At sales & dist.level – advertising, show room expenses like
rent, insurance, marketing etc.
Particulars Total cost cost per unit
Add:Factory or works overheads
Drawing office expenses
Power and fuel
Maintenance of Plant
Factory manager Salary
Less: sale of Scrap
Factory cost or work cost
Add: Office And Administration Overheads
General Office Expenses
Cost of Production
Add: Selling and distribution Expenses
Cost of free samples
Cost of Sales or total Cost
Cost Control is function, which makes sure that actual work is done to
fulfil the original intention. It is a widely accepted notion that the actual
costs for each cost element should be within the budget
Importance of Cost Control
i)It enables the firm to achieve its defined objectives.
ii)It leads to proper utilization of the firm's resources
iii)It ensures the survival and growth of a firm by preserving its
Cost Control Techniques
“ Cost Reduction is to be understood as the achievement of real and
permanent reduction in the unit
cost of goods manufacture or services rendered without impairing
their suitability for the use intended”
Importance of Cost Reduction
i)It ensures reasonable prices to customers by not passing on the
inefficiency of the business itself Purpose for Cost Control and
ii)To create cash for reinvest in R&D
iii)To reduce manufacturing cost
iv)To lower cost of service
v)To become more efficient
Cost Reduction Techniques
1)Value Analysis and Value Engineering
3)Business Process Reengineering
6)Work Study Method