2. COST ACCOUNTING
(ACCT – 232)
Contact
hours
No of
Weeks
Contents
9
3
Introduction : Definition & meaning of cost accounting, cost terminology,
classification of costs and calculation of various cost.
6
2
Job Costing: Concept, Job costing systems, Job costing in manufacturing,
actual v/s normal costing, job costing systems in manufacturing.
9
3
Activity Based Costing: Simple v/s Activity based costing system, cost
hierarchy, cost products or services using activity based costing, ABC v/s ABM
12
4
Process Costing: Process Costing methods, job order costing and spoilage,
job costing & rework and accounting for scrap.
6
2
Cost Allocation: Joint Products v/s By Products, approaches to allocating
joint costs and accounting for by-products.
42
14
Total
3. 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
5. COST ACCOUNTING - MEANING
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
6. COST - MEANING
Cost means the amount of expenditure (
actual or notional) incurred on, or
attributable to, a given thing.
7. 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
8. 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.
9. ELEMENTS OF COST
Element of cost
Materials Labour Expenses
Direct Indirect Direct Indirect Direct Indirect
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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
17. 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.)
18. 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
19. COST CLASSIFICATION – ON THE BASIS
OF
Nature
Function
Direct & indirect
Variability
Controllability
Normality
Financial accounting classification
Time
Planning and control
Managerial decision making
20. ON THE BASIS OF NATURE
Materials
Labour
Expenses
21. 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
22. ON THE BASIS OF VARIABILITY
Fixed costs
Variable costs
Semi variable costs
23. ON THE BASIS OF CONTROLLABILITY
Controllable costs
Uncontrollable costs
ON THE BASIS OF NORMALITY
Normal costs
Abnormal costs
24. ON THE BASIS OF FINANCIALACCOUNTS:
Capital costs
Revenue costs
Deferred revenue costs
25. ON THE BASIS OF TIME:
Historical costs
Pre determined costs
ON THE BASIS OF PLANNING AND CONTROL:
Budgeted costs
Standard costs
26. 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
27. TERMS IN COST ACCOUNTING
Cost unit
Cost centre
Cost estimation
Cost ascertainment
Cost allocation
Cost apportionment
Cost reduction
Cost control
28. METHODS OF COSTING
Job costing
Contract costing
Batch costing
Process costing
Unit costing
Operating costing
Operation costing
Multiple costing
29. TYPES OF COSTING
Uniform costing
Marginal costing
Standard costing
Historical costing
Direct costing
Absorption costing
30. 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 ------
31. HOME ASSIGNMENT
1. What is Cost Accounting? How it is different from Management
Accounting?
2. Explain the various types of Cost?
32. 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
3 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
5 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 .
