UNIT - 1
1. Definition & meaning of cost accounting
2. Cost terminology
3. Classification of costs and calculation of vari...
INTRODUCTION
COST ACCOUNTING
By Puneet Saluja
Cost accounting is concerned with recording, classifying and
summarizing costs for determination of costs of products or s...
COST ACCOUNTING - INTRODUCTION
 COST ACCOUNTING: The Institute of Cost and Management Accountant,
England (ICMA) has defi...
COST - MEANING
Cost means the amount of expenditure ( actual or
notional) incurred on, or attributable to, a given
thing.
...
OBJECTIVES OF COST ACCOUNTING
 Ascertainment of costs
 Estimation of costs
 Cost control
 Cost reduction
 Determining...
COST TERMINOLOGY:
 COST: Cost means the amount of expenditure incurred on a particular thing.
 COSTING: Costing means th...
ELEMENTS OF COST
Element of cost
Materials Labour Expenses
Direct Indirect Direct Indirect Direct Indirect
By Puneet Saluja
MATERIAL: The substance from which the
finished product is made is known as
material.
(a) DIRECT MATERIAL: is one which ca...
EXAMPLES OF INDIRECT MATERIAL
At factory level – lubricants, oil,
consumables, etc.
At office level – Printing & stationer...
LABOUR: The human effort required to convert the
materials into finished product is called labour.
(a) DIRECT LABOUR: is o...
EXAMPLES OF INDIRECT LABOUR
At factory level – foremen’s salary, works
manager’s salary, gate keeper’s salary,etc
At offic...
OTHER EXPENSES: are those expenses other than
materials and labour.
DIRECT EXPENSES: are those expenses which can
be direc...
Examples of other expenses
At factory level – factory rent, factory insurance, lighting, etc.
At office level – office ren...
COST SHEET 
DIRECT MATERIAL
DIRECT LABOUR
DIRECT EXPENSES
 
PRIME COST
FACTORY OVERHEADS
 
FACTORY COST
OFFICE OVERHEADS
 ...
COST SHEET - ADVANCED
 
OPENING STOCK OF RAW MATERIALS
+PURCHASES
+CARRIAGE INWARDS
-CLOSING STOCK OF RAW MATERIALS
 
VALU...
FACTORY COST
 
+ADMINISTRATIVE OVERHEADS
 
COST OF PRODUCTION
+OPENING STOCK OF FINISHED GOODS
-CLOSING STOCK OF FINISHED ...
COST CLASSIFICATION – ON THE BASIS OF
 Nature
 Function
 Direct & indirect
 Variability
 Controllability
 Normality
...
ON THE BASIS OF NATURE
 Materials
 Labour
 Expenses
By Puneet Saluja
ON THE BASIS OF FUNCTION
Manufacturing costs
Commercial costs – ADM and S&D Costs
ON THE BASIS OF DIRECT AND INDIRECT
D...
ON THE BASIS OF VARIABILITY
 Fixed costs
 Variable costs
 Semi variable costs
By Puneet Saluja
ON THE BASIS OF CONTROLLABILITY
 Controllable costs
 Uncontrollable costs
ON THE BASIS OF NORMALITY
Normal costs
Abnor...
ON THE BASIS OF FINANCIAL ACCOUNTS:
 Capital costs
 Revenue costs
 Deferred revenue costs
By Puneet Saluja
ON THE BASIS OF TIME:
 Historical costs
 Pre determined costs
ON THE BASIS OF PLANNING AND CONTROL:
Budgeted costs
Sta...
ON THE BASIS OF MANAGERIAL DECISION
MAKING
 Marginal costs
 Out of pocket costs
 Sunk costs
 Imputed costs
 Opportuni...
TERMS IN COST ACCOUNTING
 Cost unit
 Cost centre
 Cost estimation
 Cost ascertainment
 Cost allocation
 Cost apporti...
METHODS OF COSTING
 Job costing
 Contract costing
 Batch costing
 Process costing
 Unit costing
 Operating costing
...
TYPES OF COSTING
Uniform costing
Marginal costing
Standard costing
Historical costing
Direct costing
Absorption cost...
Calculation of various cost
Direct Materials
Opening stock of materials
Add Purchases of materials
Less Closing stock of m...
Home Assignment
1. What is Cost Accounting? How it is different from Management
Accounting?
2. Explain the various types o...
Sample Quiz -1
1) The basic types of cost accounting system are:
A)Job order cost systems, activity based cost systems and...
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Cost accounting

  1. 1. UNIT - 1 1. Definition & meaning of cost accounting 2. Cost terminology 3. Classification of costs and calculation of various cost. 4. Model Paper 5. Quiz 6. Home Assignment By Puneet Saluja
  2. 2. INTRODUCTION COST ACCOUNTING By Puneet Saluja
  3. 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 COST ACCOUNTING - MEANING By Puneet Saluja
  4. 4. COST ACCOUNTING - INTRODUCTION  COST ACCOUNTING: The Institute of Cost and Management Accountant, England (ICMA) has defined Cost Accounting as – “the process of accounting for the costs from the point at which expenditure incurred, to the establishment of its ultimate relationship with cost centers and cost units. In its widest sense, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned”. Cost Accounting = Costing + Cost Reporting + Cost Control. Accounting for determination and control of costs. By Puneet Saluja
  5. 5. COST - MEANING Cost means the amount of expenditure ( actual or notional) incurred on, or attributable to, a given thing. By Puneet Saluja
  6. 6. OBJECTIVES OF COST ACCOUNTING  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 By Puneet Saluja
  7. 7. COST TERMINOLOGY:  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. By Puneet Saluja
  8. 8. ELEMENTS OF COST Element of cost Materials Labour Expenses Direct Indirect Direct Indirect Direct Indirect By Puneet Saluja
  9. 9. MATERIAL: The substance from which the finished product is made is known as material. (a) DIRECT MATERIAL: is one which can be directly or easily identified in the product Eg: Timber in furniture, Cloth in dress, etc. (b) INDIRECT MATERIAL: one which cannot be easily identified in the product. By Puneet Saluja
  10. 10. EXAMPLES OF INDIRECT MATERIAL At factory level – lubricants, oil, consumables, etc. At office level – Printing & stationery, Brooms, Dusters, etc. At selling & dist. level – Packing materials, printing & stationery, etc. By Puneet Saluja
  11. 11. LABOUR: The human effort required to convert the materials into finished product is called labour. (a) DIRECT LABOUR: is one which can be conveniently identified or attributed wholly to a particular job, product or process. Eg:wages paid to carpenter, fees paid to tailor,etc. (b) INDIRECT LABOUR: is one which cannot be conveniently identified or attributed wholly to a particular job, product or process. By Puneet Saluja
  12. 12. EXAMPLES OF INDIRECT LABOUR At factory level – foremen’s salary, works manager’s salary, gate keeper’s salary,etc At office level – Accountant’s salary, GM’s salary, Manager’s salary, etc. At selling and dist.level – salesmen salaries, Logistics manager salary, etc. By Puneet Saluja
  13. 13. OTHER EXPENSES: are those expenses other than materials and labour. DIRECT EXPENSES: are those expenses which can be directly allocated to particular job, process or product. Eg : Excise duty, royalty, special hire charges,etc. INDIRECT EXPENSES: are those expenses which cannot be directly allocated to particular job, process or product. By Puneet Saluja
  14. 14. Examples of other expenses At factory level – factory rent, factory insurance, lighting, etc. At office level – office rent, office insurance, office lighting, etc. At sales & dist.level – advertising, show room expenses like rent, insurance, etc. By Puneet Saluja
  15. 15. COST SHEET  DIRECT MATERIAL DIRECT LABOUR DIRECT EXPENSES   PRIME COST FACTORY OVERHEADS   FACTORY COST OFFICE OVERHEADS   COST OF PRODUCTION SELL & DIST OVERHEADS   COST OF SALES PROFIT   SALES By Puneet Saluja
  16. 16. COST SHEET - ADVANCED   OPENING STOCK OF RAW MATERIALS +PURCHASES +CARRIAGE INWARDS -CLOSING STOCK OF RAW MATERIALS   VALUE OF MATERIALS CONSUMED +DIRECT WAGES +DIRECT EXPENSES   PRIME COST +FACTORY OVERHEADS +OPENING STOCK OF WIP -CLOSING STOCK OF WIP   FACTORY COST (CONT.)       By Puneet Saluja
  17. 17. FACTORY COST   +ADMINISTRATIVE OVERHEADS   COST OF PRODUCTION +OPENING STOCK OF FINISHED GOODS -CLOSING STOCK OF FINISHED GOODS   COST OF GOODS SOLD +SELL. & DIST. OVERHEADS   COST OF SALES +PROFIT   SALES         By Puneet Saluja
  18. 18. COST CLASSIFICATION – ON THE BASIS OF  Nature  Function  Direct & indirect  Variability  Controllability  Normality  Financial accounting classification Time  Planning and control  Managerial decision making By Puneet Saluja
  19. 19. ON THE BASIS OF NATURE  Materials  Labour  Expenses By Puneet Saluja
  20. 20. ON THE BASIS OF FUNCTION Manufacturing costs Commercial costs – ADM and S&D Costs ON THE BASIS OF DIRECT AND INDIRECT Direct costs Indirect costs By Puneet Saluja
  21. 21. ON THE BASIS OF VARIABILITY  Fixed costs  Variable costs  Semi variable costs By Puneet Saluja
  22. 22. ON THE BASIS OF CONTROLLABILITY  Controllable costs  Uncontrollable costs ON THE BASIS OF NORMALITY Normal costs Abnormal costs By Puneet Saluja
  23. 23. ON THE BASIS OF FINANCIAL ACCOUNTS:  Capital costs  Revenue costs  Deferred revenue costs By Puneet Saluja
  24. 24. ON THE BASIS OF TIME:  Historical costs  Pre determined costs ON THE BASIS OF PLANNING AND CONTROL: Budgeted costs Standard costs By Puneet Saluja
  25. 25. ON THE BASIS OF MANAGERIAL DECISION MAKING  Marginal costs  Out of pocket costs  Sunk costs  Imputed costs  Opportunity costs  Replacement costs  Avoidable costs  Unavoidable costs  Relevant and irrelevant costs  Differential costs By Puneet Saluja
  26. 26. TERMS IN COST ACCOUNTING  Cost unit  Cost centre  Cost estimation  Cost ascertainment  Cost allocation  Cost apportionment  Cost reduction  Cost control By Puneet Saluja
  27. 27. METHODS OF COSTING  Job costing  Contract costing  Batch costing  Process costing  Unit costing  Operating costing  Operation costing  Multiple costing By Puneet Saluja
  28. 28. TYPES OF COSTING Uniform costing Marginal costing Standard costing Historical costing Direct costing Absorption costing By Puneet Saluja
  29. 29. 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 ------ By Puneet Saluja
  30. 30. Home Assignment 1. What is Cost Accounting? How it is different from Management Accounting? 2. Explain the various types of Cost? By Puneet Saluja
  31. 31. Sample Quiz -1 1) The basic types of cost accounting system are: A)Job order cost systems, activity based cost systems and process cost systems. (B) Direct cost system and indirect cost systems (C) Complete job cost systems and work in process cost system. (D) Fixed cost systems and variable cost systems 2 In ABC, only one cost driver should be used in applying overhead. A) True (B) False 1) Elston's Metal Shop uses a job order cost system. It applies overhead to jobs at a rate of 150% of direct labor costs. Job No.2617 required $500bin direct labor costs. The job was initially budgeted to require $550 in direct labor costs. Overhead applied to No.2617 during the period amounted to: A) $550 (B) $750 (C) $825 (D) some other amount. 4 If the manufacturing overhead account at month end has a remaining debit balance, this indicates that overhead is under applied. A) True (B) False • A predetermined overhead application rate: A) Is used in a job order cost system but cannot be used in a process cost system (B) Can be determined by dividing budgeted direct labor cost by the budgeted factory overhead costs. (C) Is not generally accepted for financial reporting purpose. (D) Tends to avoid wide variation in per-unit overhead cost because of short -run changes in volume. By Puneet Saluja

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