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Afm class30-31ppt

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Afm class30-31ppt

  1. 1. Accounting for managers <ul><li>UNIT-3 </li></ul><ul><li>COST ACCOUNTING </li></ul>
  2. 2. COST ACCOUNTING BASIC CONCEPTS AND TERMS AGENDA: Meaning Concepts Types Differences Methods Techniques
  3. 3. Meaning: <ul><li>Cost Accounting is a quantitative method that </li></ul><ul><li>accumulates,classifies,summarizes and interprets financial </li></ul><ul><li>and non-financial information for three major purposes: </li></ul><ul><li>* ascertainment of cost of a product or service; </li></ul><ul><li>* operational planning and control; and </li></ul><ul><li>* decision-making. </li></ul>
  4. 4. Definition: <ul><li>According to Chartered Institute of Management </li></ul><ul><li>Accountants- </li></ul><ul><li>Cost accounting as that part of management </li></ul><ul><li>accounting which establishes budgets and standard costs </li></ul><ul><li>and actual costs of operations,processes,departments or </li></ul><ul><li>products and the analysis of variances, profitability or </li></ul><ul><li>social use of funds. </li></ul>
  5. 5. Cost Concept: <ul><li>Cost concepts supports the view that business cost is </li></ul><ul><li>a release of value for the acquisition or creation of </li></ul><ul><li>economic resources and is measured in terms of monetary </li></ul><ul><li>sacrifice involved. </li></ul><ul><li>Resources sacrificed or foregone to achieve a specific </li></ul><ul><li>object. </li></ul>
  6. 6. Types of costs: <ul><li>Historical cost: </li></ul><ul><li>It is measured by actual cash payments for acquiring assets,or goods and services. </li></ul><ul><li>Estimated cost: </li></ul><ul><li>It is a predetermined cost. </li></ul><ul><li>Standard cost: </li></ul><ul><li>Most scientifically predetermined cost. </li></ul><ul><li>Average cost: </li></ul><ul><li>It is the unit cost which is computed by dividing the total cost by the volume involved. </li></ul><ul><li>Marginal cost: </li></ul><ul><li>Measured by the change in cost due to change in output by one unit. </li></ul>
  7. 7. Types of costs contd., <ul><li>Replacement cost: </li></ul><ul><li>This is the current cost of replacing an asset. </li></ul><ul><li>Opportunity cost: </li></ul><ul><li>Measurable cost of the alternative uses of resources. </li></ul><ul><li>Sunk cost: </li></ul><ul><li>It represents historical cost which is irrecoverable in a given situation. </li></ul><ul><li>Controllable cost: </li></ul><ul><li>These are the costs which can be influenced by the action of an individual in an enterprise within a given time span. </li></ul><ul><li>Relevant costs: </li></ul><ul><li>Costs appropriate to aiding the making of specific management decisions are called relevant costs. </li></ul>
  8. 8. Differences between Financial and Cost Accounting: <ul><li>Purpose </li></ul><ul><li>Form of Accounts </li></ul><ul><li>Recording </li></ul><ul><li>Control </li></ul><ul><li>Periodicity of Reporting </li></ul><ul><li>Analysis of Profit </li></ul><ul><li>Reporting of Costs </li></ul>
  9. 9. <ul><li>Nature of Transactions </li></ul><ul><li>Information </li></ul><ul><li>Fixation of selling price </li></ul><ul><li>Figures </li></ul><ul><li>References </li></ul><ul><li>Relative efficiency </li></ul><ul><li>Stock valuation </li></ul><ul><li>Type of Science </li></ul>
  10. 10. Methods of costing: <ul><li>Job Costing- To ascertain cost and profit or loss in respect of each job undertaken:- </li></ul><ul><li>Batch costing </li></ul><ul><li>Contract costing/terminal costing. </li></ul><ul><li>Process Costing- To costing of process or operation involved in converting materials into finished goods. </li></ul><ul><li>Farm Costing- The main of accounting carried out in one or more fields. </li></ul>
  11. 11. Techniques of costing: <ul><li>In each of the costing methods,various techniques may be used in ascertaining costs. These techniques may be grouped according to their approaches as follows: </li></ul><ul><li>Absorption costing </li></ul><ul><li>Standard costing </li></ul><ul><li>Marginal costing </li></ul><ul><li>Life cycle costing </li></ul><ul><li>Target costing </li></ul>

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