Overview Of Cost Accounting Financial Accounting Cost Accounting

Overview Of Cost Accounting Financial Accounting Cost Accounting Management accounting

Meaning of costing and cost accounting �Costing means the techniques and processes of ascertaining cost. • Motorcar The cost of manufacturing • Furniture • Mobile a product The cost of providing Services • Electricity • Transport • Education

Cost accounting is ; science Art Practice

Application Of Cost accounting � Wholesale and retail business � Banking and insurance company � Railway � Airways � Shipping � Road transport companies � hotel

Application Of Cost accounting � Hospitals � Schools, collages and university � Farming � Cinema

Main Objective and Function of cost accounting Ascertainment of cost Cost control and cost reduction Guide to business policy Determination of selling price

Other objectives � To disclose sources of wastage (Material, time, expenses) � To know the profitability of each product and department � To organise the internal audit system � To supply useful data to the management � To advice management on future expansion � Formulation and implementation of bonus plan � For future training for the employee

Comparison of cost accounting and Financial Accounting Purpose Control Aspect Periodicity of reporting Statutory requirement Analysis of cost and profit

Comparison of cost accounting and Financial Accounting Format of presenting information Types of statements prepared Types of transaction recorded

Cost vs. Expenses and loss Cost Expired cost Expenses and loss Shown in profit and loss a/c dr side Unexpired cost Shown in the balance sheet

Cost centre Personal cost centre( Sales Manager) Impersonal cost centre ( Machine, department, Branch) Production cost centre Service cost centre

Cost unit for different Industry/ Business Cost unit Cement/Steel/Sugar Tonne (MT) Chemicals Litre, gallon, kilograms, Tonne Bricks 500 bricks or 1000 bricks Soft drink Bottle. Crate of 12 or 24 bottle Hospital Bed per day Interior decorator Each job shoes pair

Cost unit for different Industry/ Business Cost unit pencils dozen power MW Transport Kilometers Printing press copies Building Each flat Mines Tonne of Minerals education Number of student

Methods of costing Methods of Costing JOB costing Process Costing

Job Costing • Factory job costing • Batch costing • Contract costing

Process costing • Unit Costing • Operating costing • Service costing

Example of job costing � Printing � Painting � Interior decoration � Contract � Batch costing

Example of process costing � Continuous process � Chemical works, sugar mills, shops manufacturing � Operation costing � Unit costing � Service costing ( Railway , airline , electricity) � Multiple costing

Technique of Costing Standard costing Budgetary Control Marginal costing Total absorption costing Uniform costing

Classification of cost �Direct cost �Indirect cost �Fixed cost �Variable cost �Semi variable cost �Product cost �Period cost �Controllable cost �Uncontrollable cost

Classification of cost �Normal Cost �Abnormal cost �Relevant cost �Irrelevant cost �Sunk cost �Differential cost �Marginal cost �Committed cost( unavoidable in short run) �Discretionary cost (Avoidable)

Classification of cost �Imputed cost( interest) �Opportunity cost �Replacement cost �Out of pocket cost (pay) �Implicit cost (depreciation) �Future cost �Conversion cost

Element of cost Total cost Direct material Indirect cost Direct labour Direct overheads Indirect material Indirect labour Direct overheads

Direct Material �Clay in bricks �Leather in shoes �Steel in machines �Cloth in garments �Timber in furniture

Indirect Material �Lubricating oil �Sand paper �Nuts and bolts �Small tools �Threads

Direct labour �Machine operator �Shoe maker �Carpenter �Weaver �Tailor

Indirect labour �Supervisor �Inspector �Cleaner �Clerk �Peon �Watchman

Direct Expenses �Hire of special plant for a particular job �Travelling expenses to get particular contract �Cost of patent rights �Experimental costing �Royalty paid in mining �Cost of special drawing or design

Indirect Expenses � Rent and rates � Depreciation � Lighting and power � Advertising � Insurance � Repairs

Prime cost Direct Material Direct labour Direct Expenses Prime cost

Overheads Indirect Material Indirect labour Indirect Expenses overheads

Overhead Production overheads Office and administration overheads Selling and distribution overheads

Production overheads �Coal, oil, grease etc, Stationary used in factory , cotton waste �Works manager salary , salary of factory office staff, salary of inspector and supervisor, wages of factory sweeper �Factory rent, depreciation on plant, repairs and maintenance of plant, Insurance of factory building

Office and administration overheads � Stationary used in office , postage, printing � Salary of office staff, salary of managing director and remuneration to directors � Rent of office building , legal expenses , office lighting, telephone expenses, depreciation on office equipments

Selling and distribution overheads � packing material, price list, catalogues � Salary of sales manager, salary of warehouse staff, salary of drivers for delivery van � Advertising, travelling exp. , showroom expenses, carriage outward, insurance of goods in transit

Practical difficulties in costing � Lack of support from top management � Resistance from the accounting staff � Non cooperation from working and supervisory staff � Shortage of trained staff

Advantages of cost accounting � Reveals profitable and unprofitable activities � Helps in cost control � Helps in decision making � Guide in fixing selling price � Helps in inventory control � Helps in formulating policies � Helps in cost reduction � Reveals idle capacity � Checks the accuracy of financial accounts � Prevents fraud and manipulation

Limitation of costing � It is necessary � It is expensive � It is inapplicable � It is a failure

Essential of good accounting system �Suitability �Specially designed system �Support of executives �Cost of the system �Clearly defined cost centers �Controllable cost �Integration with final accounts �Continuous education �Prompt and accurate report �Avoid unnecessary details