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Cost mangement Basic concepts.ppt
- 3. What is ‘Cost’? Cost, Price, Value
- 4. What is ‘Cost Accounting’?
- 5. Financial Accounting v/s Cost Accounting Cost Accounting v/s Management Accounting
- 6. OBJECTIVES OF COST ACCOUNTING 1. Ascertainment of cost of product or service 2. Valuation of inventories 3. Providing data for planning, control and decision making
- 7. Ascertainment of cost of productservice Measurement of various elements of costs 1. Materials, 2. Labour (Manpower costs), 3. Expenses (overheads) Accounting for losses a) Normal loss, b) Abnormal loss Fixation of price to be charged to the customers C+P= S S-C= P S-P= C
- 8. Valuation of inventories Raw materials Work in process Finished goods FIFOLIFOWeighted average cost
- 9. Providing data for planning, control and decision making Introduction of a new product Discontinuing or closing a product Further processing of a product Opening a new sales office or branch Submitting tenders Make or buy decision Cost reduction or cost control
- 13. Functional classification Factory costs Material costs Labour costs Power Repairs and maintenance Admin costs Salaries to admin staff Audit fees Bank charges Legal expenses Selling costs Advertising Sales Promotion Trade exhibitions Commission Salesmen Travelling After sales service Distribution costs Storage costs Order processing costs Transportation costs Research and development costs Product research Process research Marketing research
- 14. Traceable and non-traceable costs
- 15. Traceable costs Direct or indirect costs Materials Labour Overheads
- 16. Direct and indirect materials Direct materials- which can be directly allocated to a cost centre or a cost object Illustration- Raw materials used- Plastic in toys or bottles, steel in kitchen utensils, gold in gold necklace Indirect materials- which cannot be identified in or allocated to a product Illustration- cotton waste, lubricants, spares
- 17. Direct and indirect wages Direct labour cost- wages of those workers who are readily identified or linked with a cost centre or cost object Indirect labour cost- wages of the workers which are not directly allocable to a particular cost centre – factory security staff or maintainance staff salaries
- 18. Direct and indirect expenses Direct expenses- which can be linked to a product Illustration- Hire charges of a mould, royalties to collaborator, job processing charges Indirect expenses- which cannot be directly allocable to a product Illustration- Factory power, insurance, repairs
- 19. Behavioural classification of costs Behaviour Fixed costs Variable costs Semi-variable costs
- 20. Fixed costs Cost which does not vary with the change in volume of activity Factory or office rent, audit fees, permanent staff salaries, depreciation
- 21. Variable costs Costs which tend to directly vary with the volume of activity Raw materials consumed, wages on piece rate basis, sales commission
- 22. Semi variable costs Costs which contain both fixed and variable elements. They are partly affected by fluctuation in the level of activity Power, salesmen remuneration (fixed salary+commission on sales)
- 23. Controllability classification Controllable costs- discretion of management Illustration- Sponsorship of an event, outbound or offshore picnic for staff Uncontrollable- No option or discretion Illustration- Lease rent, property taxes, allocated costs from the view point of product manager
- 24. Conversion costs Costs which are necessary to convert raw materials into finished products- Direct labour costs and manufacturing overheads
- 25. Budgeted costs Costs which are expected to be incurred during a relevant accounting period
- 26. Standard costs Standard costs are the costs that should have been incurred on actual production
- 27. SPECIAL COSTS FOR DECISION MAKING
- 28. Opportunity cost The cost of opportunity lost or sacrificed
- 29. Notional cost It is an imaginary cost which is included in the cost units or cost centres especially when its performance is measured with competitors which are not enjoying the same benefits e.g. rent, interest
- 30. Historical cost Original cost of an asset when it was acquired or constructed
- 31. Replacement cost Cost of replacing an asset according to its current worth
- 32. Sunk cost A cost that has already been incurred and which cannot be recovered- Inventory, R & D, Asset discarded
- 33. Capacity costs Capacity costs tend to be fixed in relation to changes of activity within short term periods Over long term periods of several years, significant changes in demand will cause capacity costs to change
- 34. Period cost (Same as fixed costs)
- 35. Product costs Product costs refer to the costs incurred to create a product
- 36. Product costs MAY 10, 2022 MANY THANKS FROM ANSHUL GARG FAMILY & FRIENDS
- 37. Target costs Maximum amount of cost that can be incurred and with it a firm can still earn the required profit margin at a particular selling price
- 38. Step costs A step cost is a cost that does not change steadily with changes in activity volume, but rather at discrete points- School picnic- buses Hospital- no of nurses
- 39. Relevant and Irrelevant costs Costs which are are not relevant to the decision are relevant and irrelevant costs e.g. cost of raw material in stock in respect of product discontinued
- 40. Non cash costs Depreciation on assets
- 42. Basis of classification Costs Related topic Functional classification Factory, admin, selling Methods of costing Behavioral classification Fixed, variable, semi variable CVP analysis Traceability classification Direct and indirect costs Allocation of overheads Standard Costing Standard and actual costs Standard costing and variances Budgetary control Budgeted costs Budgetary control Special costs Opportunity costs, relevant costs, sunk costs Decision making
- 43. Thanks