Cost & manamement accounting by Neeraj Bhandari ( Surkhet.Nepal )
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This document provides an introduction to cost and management accounting. It defines key terms like cost, expense, cost accounting, management accounting, and overhead. It explains the objectives and applications of cost and management accounting. The different types of overhead like works overhead, administration overhead, and selling overhead are described. The document also covers classifications of costs by nature, behavior, and for management decision making. Elements of cost like direct and indirect materials, direct and indirect labor, and direct and indirect expenses are defined. Finally, the cost sheet and its format are explained as a tool for analyzing product costs.
Cost & manamement accounting by Neeraj Bhandari ( Surkhet.Nepal )
- 1. Cost & Management Accounting BBA-II Term Unit-1 Sharda University Neeraj Bhandari
- 2. cost and Management Accounting- Introduction After going through this chapter you should beAfter going through this chapter you should be able toable to Understanding the meaning , definition and objectives of cost accounting. Understanding the meaning and definition of management accounting, Understanding the various objectives of management accounting, Deference among management, cost and financial accounting Elements of cost
- 3. Application of cost accounting Cost accounting generally considered as being applicable only to manufacturing concerns. This is not so, All types of activities, manufacturing and non- manufacturing, in which monetary value is involved should consider the use of cost accounting For example- Wholesale & retail business, banking and insurance companies, transport companies, hospitals, and farming, all may employ cost accounting techniques to operate efficiently
- 4. Introduction of cost accounting 2. Cost accounting-cost accounting is an essential part of accounting. Cost sheet, marginal costing, opportunity cost analysis and other cost techniques play a useful role in operation & control of business undertaking. Theses techniques provide the information about the total cost and per unit cost of the product and services.
- 5. What is Cost: The amount of expenditure incurred on manufacture a particular product. Expense: refers to expenditure which appear in the P&L account of a given period as matched against revenue Or Cost related to the production & Expenses related to the administration & marketing. expenses is a part of cost of doing business
- 6. Cost Accounting- Definition Cost accounting is a branch of Accounting. It is the recording, classification and appropriate allocation of expenditure for the determination of the costs of product or services.
- 7. Cost Accounting:- (a) To ascertain the cost per unit of the different products (b) To provide a correct analysis of cost (c) To disclose sources of wastage & loss- in material,time,expenses & use of machinery for increase profit. (d) Effective control of stocks
- 8. Cont.. (e) To helpful in decision making and planning, like- Make or buy component, continuing with the existing machinery or replace them. (f) To helpful in forecasting and budgeting-price fixation, future production policies: provide data that production can be appropriately planned (g) Providing necessary information to management- regarding new product cost, replacement of labour.
- 9. Management accounting-introduction As indicated by its name accounting for management, accounting which provides necessary information to the management for discharging its functions. Management accounting covers various area such as budgetary control, ratio analysis inventory control, marginal costing and standard costing.
- 10. Management accounting-introduction Management accounting is the field of accounting which deals with providing information to managers for their uses in planning, decision-making & controlling. Management accounting is accounting for effective management
- 11. m Is the presentation of planning of accounting information to assist management in the creation of policy and day to day operation of an undertaking.
- 12. Objectives of management accounting Helpful in Planning & policy formation:- forecasting , setting goals, framing policies on the basis of available information. Help in decision-making:-makes decision on cost, price, profit & savings. Helpful in controlling: management accounting devices like standard costing & budgetary control are helpful in controlling performance Motivating to employee: delegation increase the job satisfaction of employees & encourage them to look forward Provides accounting information to management.
- 14. Distinguish Among FA and CA & MA Financial A/C Cost A/C Management A/C Int + ext part of org Internal part of organization Internal part of org Gives information about P&L and Financial position To management for proper planning & control of expenditure to manufacture a product To magt about planning & creating policy of day to day operation
- 15. distinguish Prepare report, mostly annually Half yearly, quarterly, or monthly Half yearly, quarterly or monthly Monetary information used only in F.A Both monetary & non-monetary (quantitative) Both monetary and non-monetary Mandatory statement May be Mandatory May be Mandatory
- 16. It emphasizes only on recording of transaction of data in the financial statement It emphasizes on cost control with help of standards budgets It emphasizes on impact and effect aspect of costs The F.A data is historical in nature Historical & futuristic in approach Futuristic & analytical in nature F.A system can be installed without proper cost A/C system C.A system can not be installed without proper F.A system It includes both cost and financial accounting.
- 17. ELEMENTS OF COSTS The element of cost are three– material, labour, and other expenses : Material Labour Expenses
- 18. Material/ Labour/ Expenses Direct material and indirect material Direct labour and indirect labour Direct expenses and indirect expenses
- 19. Direct material All items such as raw material, standard parts and sub-assemblies to required to assemble or manufacture a complete product. or directly enter the production & form a part of the finished product. Exam: (a) wood used in production of table & chair
- 20. Conti.. (b) cloth in dress making (c) clay used in bricks. (d) leather used in shoes (e) paper used in the printing books
- 21. Indirect materials Can not be classified as direct material and miner in importance. exam- threads, oil, cleaning materials, material of repairs-nuts and bolts, gum. Or Indirect material required in production process but not necessary built into the production.
- 22. Direct labour The labour cost incurred on the employee who are engaged directly in making the product like converting raw material into finished product. Exam- machine operator, shoe- maker, carpenter, tailor and wages as paid to the workers, engaged in matching department and assembling dep.
- 23. Indirect labour Indirect labour is not directly engaged in the production operation but only to assist or help in production operation. supervisors, inspectors, clerk, peon etc. Direct expenses: those expenses which are specifically incurred in connection with a particular job or cost unit. Are also known chargeable expenses.
- 24. Example of direct expenses Hire charge of a plant, cost of design & layout, cost of patent right and royalty paid in mining Indirect expenses: are incurred by the organization in carrying out their total business activities apart from indirect material and labour. Exam: rent, taxes, insurance, lighting, telephone, postage and depreciation etc.
- 25. Thank you for First Unit
- 26. cost and Management Accounting- unit-2 After going through this chapter you should beAfter going through this chapter you should be able toable to Understanding the meaning and various types of overhead Understanding the various concepts and classification of cost, Understanding the meaning of cost sheet and preparation of cost sheet
- 27. Overhead Overhead Are all expenses other than direct expenses or “Aggregate of the cost of indirect material, labour & expenses”.
- 29. (a) Works/production overhead factory rent, rates,& lighting Insurance of plant & machinery and furniture Carriage inward Wages & incentive to indirect workers Depreciation of plant and machinery Repair & maintenance of plant and machinery & factory premise
- 30. (b) Administration overherad Office rent, rates & tax Office light Depreciation, insurance of office building Salaries of administrative staff Printing & stationary Audit fee
- 31. (c) Selling and distribution overhead Sales men’s salary & commission, showroom expenses Advertisement charges Cost of catalogues, price list & sample Bad debts and costs incurred for collection of bad debt discount. Distribution overhead Carriage & freight outwards, Packing & delivery charge Depreciation, insurance & maintain of delivery vehicle. Wages of packers & delivery boys. Running expenses of delivery vehicles
- 32. Classification of cost Classification by nature or element. (a) material (b) labour (c) expenses Classification by functions: (a) production cost (b) administration cost (c) selling & distribution cost
- 33. Classification by behaviour (a) Fixed cost: which does not vary with the change in the volume activity in the short run exp: salaries, rent, audit fee, depreciation (b) Variable cost: which directly vary with the volume of activity exp: material consumed, direct labour, sales commission, fright, packing etc. (c) Semi-variable cost: Contain both cost fixed & variable elements. They are partly affected by fluctuation in the level of activity. For example: factory supervision, maintenance etc.
- 34. Classification by time: (a) historical cost: actual cost of acquiring asset or producing goods or services (b) Estimated Cost: are prepare in advance prior to the performance of operation before the acceptance of sales orders
- 35. Classification by management decision- making (a) Differential cost: Differential cost is the change in cost due to change in activity from one level to another. If the change increase the cost , it will be called incremental cost. If these is decrease in cost the difference is known as decrement cost
- 36. Classification by management decision- making (b) Opportunity cost: (Next best alternative) exp: a person has three job offers 1 for Rs.4000 pm. II Rs. 3500 pm. III Rs. 2800 pm. By selecting best offer of Rs. 4000. the opportunity cost will be Rs. 3500. the next best alternative. the opportunity cost should not exceed the value of option selected
- 37. (c) Sunk cost: A sunk cost is the cost that has already been incurred, it is a past cost which will not be recorded if the project is terminated.
- 38. Cost sheet Cost sheet is a statement which shows various component of total cost of a product. it classifies & analyses the component of cost of a product.
- 39. Format of cost sheet Particular amounts Direct costs: direct material cost direct labour cost direct expenses cost ……………………………..prime cost (+) factory overhead. …………………………….factory cost ….. ….. ….. ……… ….. ………. ……
- 40. Conti…. factory cost (+) office or administrative overheads cost of production (+) selling & distributing overheads total cost or cost of sale (+) profit margin selling price ….. …… …… ….. …. ……. ……
- 41. Costs Prime cost = direct material + direct labour + direct expanses Works or factory cost = prime cost + factory overheads Cost of production = factory cost + administration overheads
- 42. Conti.. Total cost or cost of sales = cost of production + selling & distribution overheads note: the difference between cost of sales and selling price represents profit or loss.
- 43. Cost sheet (when purchase exp, work in process & opening or closing stock given) particulates amounts A. Material consumed: Purchased ………. (+) opening stock of raw material ………. & expenses on purchase ………. (-) closing stock of raw material ……….. direct material consumed ………. B. Direct labour C. Direct expenses prime cost=A+B+C …….. …….
- 44. CONTI.. Particulars Amounts prime cost (A+B+C+) (+) factory overheads ……… add: opening stock of work in process…. less: closing stock of work in process…… factory cost (+) office & administrative overheads …… cost of production ……. ……… …….
- 45. Conti… Particulars amounts cost of production add :opening stock of finished goods …… less : closing stock of finished goods ……. cost of goods sold ……….. (+) selling & distribution overheads …….. cost of sale …….. (+) profit margin ………. selling price …… …….. ……..
- 46. Thank you