It can be helpful for those students who belongs to accounting & finnce subject area

1. COST ACCOUNTING
BY:- DR RIDDHI DOSHI

2. Accounting is the process of identifying, measuring &
communicating the economic information of an
organisation for decision making to its users.
Accounting means record the transactions and events
in a very effective manner after that classified &
summarized them, so that we can easily analyse and
interpret them. Here, summarization means to prepare
trial balance and analyse and interpretation means to
prepare Trading and Profit & Loss a/c and Balance
Sheet.

3. • HISTORY OF ACCOUNTING:-
• In India Chanakya wrote a manuscript similar to a financial management
book, during the period of the Mauryan Empire. His book "Arthashasthra"
contains few detailed aspects of maintaining books of accounts for a
Sovereign State.
• The Italian Lucas Pacioli, recognized as The Father of accounting and
bookkeeping was the first person to publish a work on double-entry
bookkeeping, and introduced the field in Italy.(Decomputiset scripturis)
• The modern profession of the chartered accountant originated in Scotland
in the nineteenth century. Accountants often belonged to the same
associations as solicitors, who often offered accounting services to their
clients.
• In India in the year 1949 Indian government established ICAI (The Institute
of Chartered Accountants of India) in New Delhi & ICWAI (Institute of Cost
and Works Accountants of India) in Kolkata.

4. TYPES OF ACCOUNTING
FINANCIAL ACCOUNTING
COST ACCOUNTING
MANAGEMENT ACCOUNTING

5. • Financial accounting is related to recording all the
transactions as per defined rules and regulations.
• Cost accounting is related to operations
productions and other business expenses and
provide the management with information of
business profitability.
• Management accounting is related to managing
cost and financial accounting output to provide
most important to management for decision
making

6. COST ACCOUNTING- MEANING
• Cost accounting is concerned with recording
classifying and summarising cost for the
determination of cost of products or services
for planning, controlling and reducing such
costs and furnishing of the information to
management for decision making.

7. PURPOSE OF COST ACCOUNTING:-
• To identify excess cost
• To find out per unit cost of product
• To estimate loss
• Material waste
• Search material availability at low cost with
same quality.
• Make/buy decision

8. OBJECTIVES OF COST ACCOUNTING-
• Determination of cost
• Cost control & reduction
• Determination of selling price.
• Calculation/determination of profitability
• Providing business policy & decision making.

9. COST SHEET
• A cost sheet is a statement that shows the various components of total
cost for a product and shows previous data for comparison. You can
deduce the ideal selling price of a product based on the cost sheet.
• A cost sheet document can be prepared either by using historical cost
or by referring to estimated costs. A historical cost sheet is prepared based
on the actual cost incurred for a product. An estimated cost sheet, on the
other hand, is prepared based on estimated cost just before the
production begins.
• In other words, cost sheet analyzes the components of cost in order to
show the per-unit cost for a given product. Business managers use cost
sheets as reference documents to help manage purchasing and production
costs, and to find the right selling prices for products and services. While
there are other ways to manage costs, most companies choose to use cost
sheets because it’s an efficient way to track and control different kinds of
costs.

10. • Importance and objectives of cost sheet
• Cost sheets help with a number of essential business processes:
• 1. Determining cost: The main objective of the cost sheet is to obtain an
accurate product cost. It gives you both the total cost and cost per unit of
a product.
• 2. Fixing selling price: In order to fix the selling price of a product,
you need to create a cost sheet so you can see the details of its
production cost.
• 3. Cost comparison: It helps the management compare the current cost of
a product with a previous per unit cost for the same product. Comparing
the costs helps management take corrective measures if costs have
increased.
• 4. Cost control: The cost sheet is an important document for a
manufacturing unit, as it helps in controlling production costs.
Using an estimated cost sheet aids in monitoring labour, material and
overhead costs at each step of production.
• 5. Decision-making: Some of the most important
decisions management makes are based on the cost sheet. Whenever a
business needs to produce or buy a component, or quote prices for its
goods on a tender, managers refer to the cost sheet.

11. TYPES OF COST
MATERIAL
• DIRECT
• INDIRECT
LABOUR
• DIRECT
• INDIRECT
OTHER
EXPENSES
• DIRECT
• INDIRECT

12. MATERIAL:-The substance from which the
finished product is made of is called material.
Direct material is one which can be identify in
the product easily or directly.
Indirect material is one which can not be
identify in the product easily .

13. • LABOUR:- A human effort required to convert
material into finished goods is called labour.
• Direct labour is one which can be conveniently
identified wholly to a particular job product or
process.
• Indirect labour is one which can not be
conveniently identified wholly to a particular
job product or process.

14. OTHER EXPENSES:- Other expenses are those
expenses other than material and labour.
Direct expenses are those expenses which can
be directly allocated to the particular job
process or product.
Indirect expenses are those expenses which can
not be directly allocated to the particular job
process or product.

15. PRIME
COST
DIRECT
MATERIAL
DIRECT
LABOUR
DIRECT
EXPENSES

16. INDIRECT EXPENSES/ OVERHEADS
FACTORY
OFFICE
SELLING &
DISTRIBUTION

17. COST CLASSIFICATION
• ON THE BASIS OF NATURE:-
MATERIAL LABOUR
OTHER
EXPENSES

18. ON THE BASIS OF FUNCTION:-
MANUFACTURING COST
COMMERCIAL COSTS ADM AND S& D COSTS

19. • ON THE BASIS OF DIRECT & INDIRECT
DIRECT
EXPENSE
INDIRECT
EXPENSE

20. ON THE BASIS OF VARIABILITY:-
FIXED
COSTS
VARIABLE
COSTS
SEMI
VARIABLE
COSTS

21. • ON THE BASIS OF CONTROLABILITY:-
CONTROLLABLE COSTS
UNCONTROLLABLE COSTS

22. ON THE BASIS OF NORMALITY:-
NORMAL COST
ABNORMAL COST

23. ON THE BASIS OF FINANCIAL ACCOUNTING :-
CAPITAL COSTS
REVENUE COSTS
DEFERRED
REVENUE COSTS

24. ON THE BASIS OF TIME:-
HISTORICAL COSTS
PRE DETERMINED COST

25. • ON THE BASIS OF PLANNING AND CONTROL:-
BUDGETED COSTS
STANDARD COSTS

26. • ON THE BASIS OF MANAGERIAL DECISION
MAKING:-
OPPORTU
NITY
COSTS
MARGINAL
COSTS
REPLACE
MENT
COSTS
AVOIDABLE
COSTS
UNAVO
IDABLE
COST
RELEVENT
AND
IRRELEVE
NT COSTS

27. PROFORMA OF COST SHEET
• PARTICULARS AMOUNT
AMOUNT
TOTAL
DIRECT MATERIAL-PURCHASED
ADD OP STOCK OF RAW MATERIAL
LESS CL STOCK OF RAW MATERIAL
MATERIAL CONSUMED
ADD DIRECT WAGES
ADD DIRECT EXPENSES
PRIME COST
ADD WORKS OR FACTORY OVERHEADS
Factory Overheads
ADD OP STOCK OF WIP
LESS CL STOCK OF WIP
WORK COST
ADD ADMINISTRATION OR OFFICE OVERHEADS
COST OF PRODUCTION
ADD SELLING AND DISTRIBUTION OVERHEADS
ADD OP STOCK OF FG
LESS CL STOCK OF FG
COST OF SALES
ADD PROFIT MARGIN
SELLING PRICE

28. • Components & elements of total cost
• Components of total cost are constituted mainly of prime cost, factory
cost, office cost and cost of sales. Let us take a detailed look at each of
these elements:
• 1. Prime cost: This comprises direct material, direct wages, and direct
expenses. It is also called basic cost, first cost, or flat cost. It can be
defined as an aggregate of the price of the material consumed, the wages
involved in production, and the direct expenses.
Prime cost = Direct material + Direct wages + Direct expenses
Direct material cost usually refers to the cost of raw materials used or
consumed during a given period. To calculate the amount of raw
material actually consumed during a given period, you add the opening
stock and the amount of material purchased, and deduct the closing
stock. Here is the formula for material consumed:
Material consumed = Material purchased + Opening stock of material –
Closing stock of material

29. • 2. Factory cost: This is made up of prime cost plus factory overhead, which
includes indirect wages, indirect material and indirect expenses. Factory cost is
also known as works cost, production cost, or manufacturing cost.
Factory cost = Prime cost + Factory overhead
• 3. Office cost: This is also called administration cost or total cost of production.
Office cost is equal to factory cost plus office and administration overhead.
• 4. Total cost or cost of sales: This is the sum of the total cost of production
and the total of selling and distribution overhead.
Total cost = Cost of goods sold + Selling and distribution overhead
• In the production process, some units of a product are scheduled to be finished at
the end of a period. Such incomplete units are called work-in-progress. In such
situations, while calculating the factory cost of a product unit, it is necessary to
make adjustment for opening and closing stock to arrive at net factory cost of the
product. Generally, the cost of these unfinished units include direct material,
direct expenses, and factory overheads.
•

30. • Besides this, the adjustments for inventories
need to be made in the following manner
• 1. Direct material consumed = Opening stock of
direct material + Purchases of direct material –
Closing stock of direct
• 2. Works cost = Gross works cost + Opening work
in progress – Closing work in progress
• 3. Cost of production of goods sold = Cost of
production + Opening stock of finished goods –
closing stock of finished goods

31. Step I
Prime Cost = Direct Material Consumed + Direct Labour + Direct Expenses
Direct Material= Material Purchased + Opening stock of raw material-
Closing stock of raw material.
Step II
Works Cost = Prime Cost + Factory Overheads (Indirect Material + Indirect
Labour + Indirect Expenses)+opening Work in progress-Closing Work in
progress
Step III
Cost of Production = Works Cost + Office and Administration overheads +
Opening finished goods-Closing finished goods
Step IV Total Cost = Cost of Production + Selling and Distribution Overheads
Profit Sales – Total Cost
Method of Preparation of Cost Sheet

32. From the following information prepare a cost sheet. Company desires
a margin of 20% profit on the cost of sales
Particulars Amount
Direct material-purchased 80000
Direct material -Opening stock 20000
Direct material -Closing Stock 25000
Productive wages 22,000
Direct Expenses 5,000
Consumable stores 4000
Factory manager salary 15000
Unproductive wages 7000
Factory Overheads 12,000
Work-in-progress:
Opening stock 13,000
Closing stock 7,000
Office and administration overheads 28,000
Opening stock of finished goods 5000
Closing stock of finished goods 10000
Selling and distribution overheads
33,000

33. COST SHEET FOR THE MONTH OF__________ FOR XYZ.
PARTICULARS AMOUNT
AMOUNT
TOTAL
DIRECT MATERIAL-PURCHASED 80,000.00
ADD OP STOCK OF RAW MATERIAL 20,000.00
LESS CL STOCK OF RAW MATERIAL 25,000.00 –
MATERIAL CONSUMED 75,000.00 75,000.00
ADD DIRECT WAGES 22,000.00
ADD DIRECT EXPENSES 5,000.00
PRIME COST 102,000.00
ADD WORKS OR FACTORY OVERHEADS
Consumable stores 4,000.00
Factory manager salary 15,000.00
Unproductive wages 7,000.00
Factory Overheads 12,000.00 38,000.00
140,000.00
ADD OP STOCK OF WIP 13,000.00
LESS CL STOCK OF WIP 7,000.00 6,000.00
WORK COST 146,000.00
ADD ADMINISTRATION OR OFFICE OVERHEADS 28,000.00
COST OF PRODUCTION 174,000.00
ADD SELLING AND DISTRIBUTION OVERHEADS 33,000.00 33,000.00
207,000.00
ADD OP STOCK OF FG 5,000.00
LESS CL STOCK OF FG 10,000.00 –
COST OF SALES 202,000.00
ADD PROFIT MARGIN @ 20% ON COST OF SALES 40,400.00
SELLING PRICE 242,400.00