Cost accounting

Introduction

COST - MEANING
Cost means the amount of expenditure ( actual or notional) incurred on, or attributable to, a given thing.

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

ELEMENTS OF
COST

COST

MATERIALS

OTHER EXPENSES

LABOUR

DIRECT

INDIRECT DIRECT

INDIRECT

DIRECT

INDIRECT

OVERHEADS
DOH

FOH

AOH

SOH

MATERIAL: The substance from which the finished product is made is known as material.
Direct material is one which can be directly or easily identified in the product Eg: Timber in furniture, Cloth in dress, etc.

Indirect material is one which cannot be easily identified in the product.

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.

LABOUR: The human effort required to convert the materials into finished product is called labour. 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.
INDIRECT LABOUR is one which cannot be conveniently identified or attributed wholly to a particular job, product or process.

Examples of Indirect labour

At factory level foremens salary, works managers salary, gate keepers salary,etc At office level Accountants salary, GMs salary, Managers salary, etc. At selling and dist.level salesmen salaries, Logistics manager salary, etc.

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.

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.

How to treat the following?

Carriage Packaging expenses

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

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.)

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

COST CLASSIFICATION ON THE BASIS OF

Nature Function Direct & indirect Variability Controllability Normality Financial accounting classification Time Planning and control Managerial decision making

ON THE BASIS OF NATURE

MATERIALS
LABOUR EXPENSES

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

ON THE BASIS OF VARIABILITY

FIXED COSTS
VARIABLE COSTS SEMI VARIABLE COSTS

ON THE BASIS OF CONTROLLABILITY

CONTROLLABLE COSTS
UNCONTROLLABLE COSTS

ON THE BASIS OF NORMALITY

NORMAL COSTS
ABNORMAL COSTS

ON THE BASIS OF FIN. ACC

CAPITAL COSTS
REVENUE COSTS DEFERRED REVENUE COSTS

ON THE BASIS OF TIME

HISTORICAL COSTS
PRE DETERMINED COSTS

ON THE BASIS OF PLANNING AND CONTROL

BUDGETED COSTS STANDARD COSTS

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

TERMS IN COST ACCOUNTING

COST UNIT COST CENTRE COST ESTIMATION COST ASCERTAINMENT COST ALLOCATION COST APPORTIONMENT COST REDUCTION COST CONTROL

METHODS OF COSTING
JOB COSTING CONTRACT COSTING BATCH COSTING PROCESS COSTING UNIT COSTING OPERATING COSTING OPERATION COSTING MULTIPLE COSTING

TYPES OF COSTING
UNIFORM COSTING MARGINAL COSTING STANDARD COSTING HISTORICAL COSTING DIRECT COSTING ABSORBTION COSTING