Cost - Cost Accounting - Definition - Terms - Elements - Cost Classification - Methods

1. Cost Accounting
Dr. P. Pirakatheeswari
Associate Professor
Department of Commerce - PA
Sri Ramakrishna College of Arts &
Science, Coimbatore.
1
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

2. COST – MEANING
Cost means the amount of
expenditure (actual or notional)
incurred on, or attributable to, a given
thing. Cost is a resource sacrificed or
forgone to achieve a specific
objective.
An Actual Cost is the cost
incurred (a historical cost) as
distinguished from budgeted costs.
Applied Cost Accounting - Unit 1 SRCAS
2
15/12/2023

3. 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.
3
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

4. “Cost accountancy” as the application of
costing and cost accounting principles, method
and techniques to the science, art and practice
of cost control and the ascertainment of
profitability.
4
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

5.  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
5
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

6.  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.
 JOB COSTING: It helps in finding out the cost of production of
every order and thus helps in ascertaining profit or loss made
out on its execution. The management can judge the
profitability of each job and decide its future courses of action.
 BATCH COSTING: Batch costing production is done in batches
and each batch consists of a number of units, the
determination of optimum quantity to constitute an economical
batch is all the more important.
6
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

7. 7
Element of
cost
Materials Labour Expenses
Direct Indirect Direct Indirect Direct Indirect
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

8. Classification On basis of :
 Nature
 Function
 Variability
 Controllability
 Normality
 Financial accounting classification
 Time
 Planning and control
 Managerial decision making
8
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

9.  Materials
 Labor
 Expenses
9
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

10.  Manufacturing costs
 Commercial costs – Administration Cost
Development Cost
Selling Cost
Distribution Costs
10
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

11.  Fixed costs
 Variable costs
 Semi variable costs
11
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

12.  Controllable costs
 Uncontrollable costs
ON THE BASIS OF NORMALITY
 Normal costs
 Abnormal costs
12
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

13.  Capital costs
 Revenue costs
 Deferred revenue costs
13
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

14.  Historical costs
 Pre determined costs
ON THE BASIS OF PLANNING AND
CONTROL
 Budgeted costs
 Standard costs
14
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

15.  Marginal costs
 Out of pocket costs
 Sunk costs
 Imputed costs
 Opportunity costs
 Replacement costs
 Avoidable costs
 Unavoidable costs
 Relevant and irrelevant costs
 Differential costs
15
15/12/2023
Applied Cost Accounting - Unit 1 SRCAS

16. 15/12/2023
Applied Cost Accounting - Unit 1 SRCAS 16
TERMS IN COST ACCOUNTING
 Cost Unit
 Cost Centre
 Cost Estimation
 Cost Ascertainment
 Cost Allocation
 Cost Apportionment
 Cost Reduction
 Cost Control

17. 15/12/2023
Applied Cost Accounting - Unit 1 SRCAS 17
METHODS OF COSTING
 Job Costing
 Contract Costing
 Batch Costing
 Process Costing
 Unit Costing
 Operating Costing
 Operation Costing
 Multiple Costing

18. 15/12/2023
Applied Cost Accounting - Unit 1 SRCAS 18
COST SHEET

19. 15/12/2023
Applied Cost Accounting - Unit 1
SRCAS 19
Calculation of Various Cost
Direct Materials
Opening stock of materials
Add Purchases of materials
Less Closing stock of materials
(a) Materials consumed
Direct Wages
Direct Expenses ------ ------
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 ------

20. Thank You
20
15/12/2023
Applied Cost Accounting - Unit 1
SRCAS