Cost INTO

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Fundamentals

PARAMJIT SHARMA
The art of Recording, Classifying,
And summarizing in terms
of money ,transactions and events
Accounting which are of financial Nature,
and interpreting the results
thereof

Cost Management
Financial
Accounting Accounting
Accounting

PARAMJIT SHARMA
Manufacturing & Marketing Cars

What Would Be The Role Of Financial Accounting ?


What Would Be The role Of Cost Accounting ?
What Would Be Role Of Management Accounting ?

PARAMJIT SHARMA
Manufacturing & Marketing Cars

Reducing Cost of the car by INR 10,000

PARAMJIT SHARMA
Financial Accounting- Fundamentals
meaning & limitations

FA is concerned with Journal

RECORDING,
CLASSIFYING AND
SUMMARISING
Ledger

financial transactions in accordance Trial Balance


with the generally accepted
Accounting Principles
Final Statements
PARAMJIT SHARMA
Financial Statements Fundamentals

PROFIT & LOSS


BALANCE-SHEET
ACCOUNT

STATEMENT OF
SOURCES &
APPLICATIONS OF
FUNDS

PARAMJIT SHARMA
Financial Accounting- limitations Fundamentals

HISTORICAL
HISTORICAL ONLY
ONLYNET
NETRESULTS
RESULTS

NO
NOCONTROL
CONTROL NO
NODISTINCTION
DISTINCTION
ON
ONCOST Direct
COST Direct&&Indirect
Indirect

Inadequate
InadequateInformation
Information NO
NOCOMPARISON
COMPARISONOF
OF
For
For
PRICE FIXATION COSTS
COSTS
PRICE FIXATION

NO
NOSTANDARDS
STANDARDSTO TO
Assess
AssessPerformance
PARAMJIT SHARMA Performance
Few Terms - clarification Fundamentals

COST ACCOUNTANCY
COSTING
COST ACCOUNTING

PARAMJIT SHARMA
Few Terms - clarification Fundamentals

COST ACCOUNTANCY

ItIt is
isthe
theapplication
applicationof Costing and
of Costing and Cost
Cost Accounting
Accounting
Principles,Methods
Principles, Methodsand andTechniques
Techniquesto tothe
thescience,
science,
artand
art andpractice
practiceof of Cost
CostControl
Control and
andthe
theascertainment
ascertainment
of profitability.
of profitability. ItItincludes
includesthe
thepresentation
presentationofofinformation
information
derivedthere
derived therefrom
from for forthe
thepurpose
purposeofof Managerial
Managerial
DecisionMaking
Decision Making

PARAMJIT SHARMA
COST ACCOUNTING- introduction Fundamentals

The Process of accounting for costs from the


Point at which expenditure is incurred or
committed to the establishment of its ultimate
relationship with cost centers and cost units

Books Cost Centers


Of Cost Accounts

PARAMJIT SHARMA
Few Terms - clarification Fundamentals

COSTING
•Technique and process of ascertaining costs

•Classifying, recording and appropriate allocation of Expenditure


for determination of costs of products ( Watch, TV, Computers)
or services (Electricity, telephone, Transport Etc)

PARAMJIT SHARMA
Costing Objectives

Ascertaining Setting Cost Cost


cost Price Control Review

Operating
Decisions

PARAMJIT SHARMA
decision making Fundamentals

MAKE OR
BUY SALES
CAPACITY VOLUME

PROFIT
PRICE

OPERATE
EXPORT
NEW OR
PRICE
MODEL SHUT
PARAMJIT SHARMA
Cost Accounting- principles Fundamentals

1. A cost is related to cause- rent of factory charged to factory

2. A cost is charged after it has been Incurred-no selling cost to unsold


stock

3. Abnormal costs are excluded – loss due to fire accident

4. Conservatism Concept ignored in Cost Accounting- stock


valued at cost only

5 Principle of Double entry applied to cost accounting too

PARAMJIT SHARMA
Cost/Financial Accounting- differences Fundamentals

Factor FA CA
Need Compulsory Obligatory

Final Results to stake


Purpose Holders Cost Information

Recording Subjective Recording Objective Recording

Profit Product wise


Analysis
Total Profit/Loss

Contents External Transactions Internal

PARAMJIT SHARMA
Cost/Financial Accounting- differences Fundamentals

Factor FA CA
Periodicity Once/twice Daily/weekly/monthly

Control Inadequate System at Place

Nature Historical Historical/Predetermined

Valuation Cost or market Cost Price

PARAMJIT SHARMA
Management/Cost Accounting- differences Fundamentals

factor MA CA
Derivation Of Data •Cost/Financial Acct Data From CA

Information Provided •Cost/Fin. Information Only Cost Inf.


CVP/Fin Ratios
Emphasis •Decision Making Cost Ascertainment
& Control
•Planning, Decision M Reporting Cost
Purpose
& Control
•Short/Long Term Short Term
Planning
Variable Costing,
•RA,FF, C Flow Budgetary Control etc
Techniques
•Not possible without Can Be Installed
Installation CA system Without CA

PARAMJIT SHARMA
Cost Accounting- advantages Fundamentals

Supplies Detailed Cost Information


Helps in Price Fixation
Reveals UN (Profitable) Activities
Reveals idle capacity
Assist in Controlling Costs
Helps in decision Making
Facilitates Cost Comparison
Helps in Inventory Control
PARAMJIT SHARMA
Cost Accounting- Objections Fundamentals

It is Unnecessary
It is Inapplicable
It is a failure
Mere matter of
Forms and Ruling
It is Expensive

PARAMJIT SHARMA
Price …..Quality ….Strategies
Price
High Med low
1 2 3
H Premium High value Super value
Product Quality

Strategy strategy strategy

4 5 6
Overcharging Medium Good value
M
strategy Value Stg. Strategy

7 8 9
Rip off False Econ. Economy
L Strategy Strategy Strategy
PARAMJIT SHARMA
Fundamentals
Costing Methods

Job Costing
Batch Costing
Contract Costing
Process Costing
Unit Costing
Operation Costing
Operating Costing
Multiple Costing
PARAMJIT SHARMA
Costing Techniques Fundamentals

Historical Costing
Standard Costing
Marginal Costing
Absorption Costing
Direct Costing
Uniform Costing

PARAMJIT SHARMA
Installation Of Costing System Fundamentals

•Nature Of Business
•Structure of Organization
•Objectives and Expectations
•Cooperation and support Of staff
•Standardization of Forms
•Prompt Reporting
•Flexibility
•Reconciliation of FA & CA
•Current Practices
•Simplicity

PARAMJIT SHARMA
Installation Of Costing System-difficulties Fundamentals

•Lack Of Management Support


•Resistance Of Staff
•Non Cooperation From Other Levels
•Shortage Of Trained Staff
•Heavy Cost Of Operating The System

PARAMJIT SHARMA
Fundamentals

Time for Questions

PARAMJIT SHARMA

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