Cost accountingggggggggggggggggggggggggg.ppt
- 1. • Subject Name- AFM&R (MBA 104-18) • Topic – COST ACCOUNTING • Faculty Name- Mr. MALKEET SINGH
- 2. COST - MEANING Cost means the amount of expenditure incurred on, or attributable to, a given thing.
- 3. 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.
- 4. OBJECTIVES OF COSTACCOUNTING Ascertainment of costs Estimation of costs Cost control Cost reduction Determining selling price Facilitating preparation of financial and other statement
- 5. COSTTERMINOLOGY: 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.
- 6. ELEMENTS OF COST Element of cost Materials Labour Expenses Direct Indirect Direct Indirect Direct Indirect
- 7. 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.
- 8. 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.
- 9. 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.
- 10. 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.
- 11. 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.
- 12. 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.
- 13. 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
- 14. 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.)
- 15. 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
- 16. COST CLASSIFICATION – ONTHE BASIS OF Nature Function Direct & indirect Variability Controllability Normality Financial accounting classification Time Planning and control Managerial decision making
- 17. ONTHE BASIS OF NATURE Materials Labour Expenses
- 22. ONTHE BASIS OF FUNCTION Manufacturing costs Commercial costs – ADM and S&D Costs ON THE BASIS OF DIRECT AND INDIRECT Direct Costs Indirect Costs Indirect costs
- 26. ONTHE BASIS OFVARIABILITY Fixed costs Variable costs Semi variable costs
- 28. ONTHE BASIS OF CONTROLLABILITY Controllable costs Uncontrollable costs Controllable cost refers to a cost that can be altered based on a business decision or need. On the other hand, uncontrollable cost refers to a cost that cannot be altered based on a personal business decision or need.
- 31. ONTHE BASIS OF FINANCIAL ACCOUNTS: Capital costs : Capital costs are fixed, one-time expenses incurred on the purchase of land, buildings, construction, and equipment used in the production of goods or in the rendering of services. Revenue costs: Cost of revenue is the total of all costs incurred directly in producing, marketing, and distributing the products and services of a company to customers. Deferred revenue costs: Deferred revenue expenditure is an expenditure which is incurred in the present accounting period, but its benefits are incurred in the following or the future accounting periods. This expenditure might be written off in the same financial year or over a period of a few years.
- 32. ONTHE BASIS OFTIME: Historical costs Pre-determined costs ON THE BASIS OF PLANNING AND CONTROL: Budgeted costs Standard costs The term Standard cost refers to a specific cost per unit. Budgeted cost refers to costs in total given a certain level of activity. For example, management might think that demand might increase 10 percent next year, so they take the current sales figure and add 10 percent in the budget. Next management must figure out what expenses are associated with producing this amount of product. These estimated expenses are considered budgeted costs.
- 33. ONTHE BASIS OF MANAGERIAL DECISION MAKING Marginal costs: Change in the total cost that arises when the quantity produced is incremented, the cost of producing additional quantity. Out of pocket costs Sunk costs Opportunity costs Replacement costs Avoidable costs Unavoidable costs Relevant and irrelevant costs Differential costs
- 35. TERMS IN COSTACCOUNTING Cost unit Cost centre Cost estimation Cost ascertainment Cost allocation Cost apportionment Cost reduction Cost control Cost ascertainment is the process of determining costs on the basis of actual data. Hence, the computation of historical cost is cost ascertainment while the computation of future costs is cost estimation.
- 36. Allocation of cost means a process in which the entire amount of overhead is charged to a specific cost center. On the contrary, Apportionment of cost can be understood as the distribution of proportions of cost items to the cost unit, i.e. product or service or the cost center. Cost Control focuses on decreasing the total cost of production while Cost Reduction focuses on decreasing per unit cost of a product.
- 37. METHODS OF COSTING Job costing: Job costing is an accounting method designed to help you track the cost of individual projects and jobs Contract costing: Contract costing is the tracking of costs associated with a specific contract with a customer Batch costing: Batch cost is the cluster of costs incurred when a group of products or services are produced Process costing: Process costing is an accounting method typically used by companies that mass produce very similar or identical products or units of output
- 38. Unit costing: A unit cost is a total expenditure incurred by a company to produce, store, and sell one unit of a particular product or service Operating costing: Operating costs are the ongoing expenses incurred from the normal day-to-day of running a business Operation costing: Operation costing is a mix of job costing and process costing Multiple costing: Multiple costing, also known as composite costing, is a type of accounting method used when goods are sold that contain several other processed parts, and these parts are costed differently. ... Just as the final product needs a cost associated with it, so do each of the parts created by other processes. This type of costing is used in industries where several component part are separately produced and then assembled into a final product. For example, Bicycle, Television and Cars etc
- 39. Thank You