Cost accounting Introduction COST MEANING Cost means the
- Slides: 50
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 MATERIALS LABOUR INDIRECT INDIRECT OTHER EXPENSES DIRECT INDIRECT OVERHEADS FOH AOH SOH DOH
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 – 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.
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 v Function v Direct & indirect v Variability v Controllability v Normality v Financial accounting classification v Time v Planning and control v Managerial decision making v
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 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
COST SHEET ALL EXPENSES RELATING TO PRODUCT ARE EXTRACTED FROM FINANCIAL ACCOUNTS ARE ANALYSED UNDER EXPENSES HEAD IN THE FORM OF STATEMENT. This tabulated statement is called cost sheet.
PURPOSES-COST SHEET BREAK UP FIQURES OF THE TOTAL COST UNDER DIFFERENT ELEMENTS GIVES TOTAL COST AS WELL AS COST PER UNIT FACILITATES COMPARISONS PREPARATION OF COST ESTIMATES FIXING THE SELLING PRICE FACILITATE COST CONTROL
COST SHEET PRIME COST – Flat Cost; first cost or direct cost It involves direct cost such as Ø Direct materials Ø Direct labour Ø Direct expenses
Works Cost/Factory Cost Total of all items of expenses
COST OF PRODUCTION/OFFICE COST Factory cost +administrative expenses
TOTAL COST/FINAL COST
SELLING PRICE COST OF SALES + Margin of profit
Problems: 1. Calculate Prime Cost; Factory Cost, Cost of Production, Cost of Sales and Profit from the following details: Direct materials 10000 Direct labour 4000 Direct Expenses 500 Factory expenses 1500 Administrative expenses 1000 Selling expenses 300 Sales 20, 000
PROBLEM 2 From the following details you are required to prepare production account for the three months ending 31 st March, assuming stock of finished goods at the end of the period to be valued at cost showing, a) Value of materials consumed b) Works cost c) Cost of production d) Costs of goods sold e) Gross profit f) Net profit
Jan 1 Raw materials 20, 000 Finished goods 14, 300 Work in progress 6, 200 Purchases of Raw materials 17, 600 Direct wages 14, 000 Indirect wages 500 Work expenses 7, 400 Office expenses 2, 600 Selling expenses 3, 000 Sales 56, 800 Jan 31 24, 700 8, 400 6, 900
3. Draw the statement of cost from the following particulars Opening stock (1) Materials (2) Work in progress (3) Finished goods Closing stock(1) Materials (2) work in progress (3) Finished goods Materials purchased Direct wages Rs 2, 000 60, 000 5, 000 1, 80, 000 50, 000 15, 000 1, 50, 000 Manufacturing expenses Sales Selling and distribution expenses 1, 000 8, 000 20, 000
4. Following data relate to the manufacture of a product during the month of January Raw materials consumed Rs. 80, 000 Direct wages Rs. 48, 000 Machine hours worked 8, 000 Machine hour rate Rs. 4 Office overhead 10% of works cost Selling Overhead Rs. 1. 50 per unit Unit produced 4, 000 Unit sold 3, 600 at Rs. 50 each Prepare a cost sheet and show (a) Cost per unit (b) Profit for the period
From the following particulars, prepare a statement showing the components of the total sales and profit for the year ended 31 st December. Rs Stock of finished goods (1 st Jan) 6, 000 Stock of raw materials (1 st Jan) 40, 000 Work in progress (1 st Jan) 15, 000 Purchase of raw materials 4, 75, 000 Carriage inwards 12, 500 5.
Factory Rent, taxes Other Production expenses Stock of goods (31 st Dec) Wages Work manager’s salary Factory Employee’s salary Power expenses General expenses Sales for the year Stock of raw materials Work-in-progress (31 st Dec) 7, 250 43, 000 15, 000 1, 75, 000 30, 000 60, 000 9, 500 32, 500 8, 60, 000 50, 000 10, 000
. TENDER: The price at which the items of output are offered for sale is known as tender or quotation price.
. Tender is prepared by considering the following items: • Raw materials • Direct labour • Chargeable expenses • Works overhead • Office overhead • Selling overhead • Estimated profit
. Steps to remember in estimation of overhead: It is estimated on the basis of past experience. Percentage of factory overheads to direct wages =Factory overheads/Direct wages * 100
. Percentage of office overheads to work cost =office overheads/work cost * 100 Percentage of Selling and distribution overheads to works cost = Selling and distribution overheads /works cost* 100
. Profit=cost of sales * percentage of profit/100 (or) Profit= cost of sales* Rate of profit on sales/100 -rate % on sales
. The following data have been extracted from the books of M/s Moon shine Industries for the calendar year 2010. Rs. Opening stock of raw materials Purchase of raw materials Closing stock of raw materials 25, 000 85, 000 40, 000
REVISION PROBLEM 1) The following figures have been given from a factory for the year 2004 Material Rs. 12, 000 Wages 10, 000 Factory overheads Rs. 6, 000 Administration expenses Rs. 6, 72, 000 Selling overhead Rs. 4, 48, 000 Distribution overhead Rs. 2, 80, 000 Profit 8, 40, 000 In 2005 the firm wants to execute a work order which requires Rs. 16, 000 for materials and Rs. 10, 000 for direct wages. Determine the price at the same rate of profit in 2004 (Answer Work order 55, 200; factory O/H % to wages 60%; AD O/H to work cost 21% ; S&D O/H to WC 22. 75% Profit 1/6 on sales=20% on cost)
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