Basic Concept in Cost Accounting

2. Cost
It is the expenditure incurred for producing the product or rendering the service.

3. Example of Cost
Factory Rent Insurance Paid Payment of Wages
Utility Bill

4. Cost also includes notional expenditure e.g. Depreciation

6. Costing
“techniques and processes of ascertaining cost”.
The process of accounting for cost
Begins with the recording of income and expenditure.
Ends with the preparation of periodical statements, report variances and their analysis.

7. Cost Accounting
Cost accounting is a process of recording, analysing and reporting a cost
of a product.
This is a formal system of cost records so that ascertainment of cost
became easy and reliable.
Cost accounting determines fixed and variable elements of the cost
associated with the product.

8. This term is over and above costing and cost accounting.
Cost Accountancy
Cost Accountancy facilitates management with cost control
initiatives, ascertainment of profitability, and informed
decision-making.
It also includes determining the selling price for the
products, division, and unit-wise profitability.
Forecasting expenses and probable future incomes are
also a part of the practice of Cost Accountancy

10. Modern cost accounting originated during the industrial
revolution when the complexities of running large scale businesses led to
the development of systems for recording and tracking costs to help
business owners and managers make decisions.
Origins of Cost Accounting

11. (i) Ascertainment of cost
(ii) Determination of selling price
(iii) Ascertaining the profit of each activity
(iv) Cost control
(v) Cost reduction
(vi) Assisting management in decision making

12. a) It is a process of accounting to determine costs and price of a product.
b) It records incomes and expenditures, required for manufacturing of
product and rendering services.
c) It provides statistical data for preparing estimates and budgets
d) It is the basis for cost control and cost reduction policies of a company.
e) It evaluates efficiency by comparing actual with standard and find the
reasons for variance.
f) It involves recording, analysis, comparison and reporting of data in
order to ascertain cost.

13. Difference Between Cost Accounting and Financial Accounting
BASE COST ACCOUNTING FINANCIALACCOUNTING
Meaning
Cost Accounting is an accounting system, through which
an organization keeps the track of various costs incurred
in the business in production activities.
Financial Accounting is an accounting system that captures
the records of financial information about the business to
show the correct financial position of the company at a
particular date.
Information type
Records the information related to material, labor and
overhead, which are used in the production process.
Records the information which are in monetary terms.
Which type of cost is
used for recording?
Both historical and pre-determined cost Only historical cost.
Users
Information provided by the cost accounting is used only
by the internal management of the organization like
employees, directors, managers, supervisors etc.
Users of information provided by the financial accounting
are internal and external parties like creditors,
shareholders, customers etc.
Valuation of Stock At cost Cost or Net Realizable Value, whichever is less.
Mandatory No, except for manufacturing firms it is mandatory. Yes for all firms.
Time of Reporting
Details provided by cost accounting are frequently
prepared and reported to the management.
Financial statements are reported at the end of the
accounting period, which is normally 1 year.
Profit Analysis
Generally, the profit is analyzed for a particular
product, job, batch or process.
Income, expenditure and profit are analyzed together for a
particular period of the whole entity.
Purpose Reducing and controlling costs. Keeping complete record of the financial transactions.
Forecasting Forecasting is possible through budgeting techniques. Forecasting is not at all possible.

14. COST UNIT:
Total expenditure incurred to
produce, store, and sell one unit of a product
or service is called as cost unit.
Conceptual analysis of cost unit and cost center
Unit cost of a product include variable cost
and fixed cost.
There are various factors which should be
considered while selecting cost unit.
Example: milk is quantified as per litres, per
gallon, whereas power and electricity is
measured as Kilowatt-hours.
Industry Cost Unit
Automobile Number
Cable, Rope, Road Construction, Wire Metre or Kilometre
Cable, Rope, Road Construction, Wire Tonne
Chemicals Litre, Kilogram, Tonne
Gas, Casting Cubic Metre
Metal Plating, Fabric Printing Square Metre
Nuts and Bolts Gross or Bag of Standard
Power (Electricity) Kilo-watt hour
Transport Tonne-Kilometre,
Passenger Kilometre
Bricks Thousand
Cost units are depends on industry

15. Types of Cost Unit
Single
Cost Unit
Composite
Cost Unit
Single cost unit: It involves the use of a single
standard or unit of measurement of the goods
manufacture e.g. Product per piece, per kilogram, per
quintal, per tonne, per gallon, per meter etc.
Composite Unit or Complex Unit: It is a
combination of two simple units e.g., per passenger-
kilometer, per tonne-kilometre , per kilowatt-hour
etc.