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MA - Cost Concept, Classification & Estimation - Unit II

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28 views19 pages

MA - Cost Concept, Classification & Estimation - Unit II

Uploaded by

nirmalk.chaudhary022
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Cost Concept, Classification

& Estimation

By : Hari Gautam
Cost Concept
Money or Money Value given up to
acquire goods or services
Payment of monetary value against

resources
Cost Object and Cost Unit
Cost Object :- something for which you
want to compute a cost

Cost Unit :- a unit of measurement of cost


for the cost object
Example :- cost per cartoon(unit) of noodle
Cost center, Cost accumulation
& Cost Allocation
Cost Center :- division, branch, unit,
product, segment etc. that authority and
responsibility for an expense.
Cost Accumulation:- collecting cost data
Cost Allocation:- assigning & apportioning
accumulated costs to a cost object
Cost Classification for
Different Purposes
Cost Classification For Product Costing
Prime Cost/Direct Cost:- Direct Materials,
Direct Labours, Direct
Expenses
Overhead Cost/Indirect Cost :- Indirect

materials, Indirect Labour, Indirect


Expenses
Functional Classification of Cost
ManufacturingCost
Non-Manufacturing Cost
Product Cost and Period Cost

Product Cost:- Cost of making product

Period Cost :- Based on time passed, no


matter volume of production
Administrative and Selling/Distribution
Cost
Cost Classification for Profit Maximization
 Relevant Cost and Irrelevant cost

 Avoidable cost and unavoidable cost


Cost classification for Control
 Controllable cost
 Non-controllable cost
Cost Classification for Financial Reporting
 Absorbed cost and unabsorbed cost
 Expired cost and un-expired cost
 Capital Expenditure and Revenue expenditure
Sunk cost
A sunk cost is that cost which already been
incurred and there cannot be any decision or in
the future. All sunk cost are irrelevant for
decision making because these are past costs,
which do not alter the change in decision.
 Opportunity Cost
Cost behavior and Classification
 Variable Cost :- changes according to activity level
 Fixed cost:- does not change according to activity level
 Semi-variable Cost ( Mixed Cost ) :- Fixed in
nature up to certain level and then variable in nature

 1 unit = Rs. 3, 5 units= Rs. 15, 20units=Rs60


 0 units=Rs. 0
 1unit=2labours, 5units=10labours
Step fixed cost
 1 vehicle = 15 persons = Rs. 10,000
(1, 2,3,….. 14, 15 ) = Rs. 10,000
( 16,17,18, …. 29, 30 ) = Rs. 20,000
( 31, 32, 33,….44, 45, )=Rs. 30,000
46
Segregation of Cost = 10 marks
Segregation of semi variable in fixed and
variable.

Methods:-
1. High Low Point Method
2. Least Square Method
High Low Point Method

Variable cost Per unit (b) =


(cost at high activity-Cost at low Activity)/(high activity-low
Activity)

Total Cost (Y) = Fixed Cost(FC) + variable cost (VC)


=FC + VCPU(b) x production units (X)
Y = a + bx

Variable cost = variable cost per unit (VCPU) x output units (X)

VC = Total cost – Fixed cost


Fixed costs = Total cost – variable cost
Thank you

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