cost accounting - ppt chp 1.ppt
- 2. COST – MEANING Cost means the amount of expenditure ( actual or notional) incurred on, or attributable to, a given thing. 2
- 3. 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 3
- 4. Definition • “Cost accountancy” as the application of costing and cost accounting principles, method and techniques to the science, art and practice of cost control and the ascertainment of profitability 4
- 5. 2. OBJECTIVES OF COSTACCOUNTING Ascertainment of costs Estimation of costs Cost control Cost reduction Determining selling price Facilitating preparation of financial and other statement Providing basis for operating policy 5
- 6. 3. COST TERMINOLOGY COST: Cost means the amount of expenditure incurred on a particular thing. COSTING: Costing means the process of ascertainment of costs. COST ACCOUNTING: The application of cost control methods and the ascertainment of the profitability of activities carried out or planned”. COST CONTROL: Cost control means the control of costs by management. Following are the aspects or stages of cost control. JOB COSTING: It helps in finding out the cost of production of every order and thus helps in ascertaining profit or loss made out on its execution. The management can judge the profitability of each job and decide its future courses of action. BATCH COSTING: Batch costing production is done in batches and each batch consists of a number of units, the determination of optimum quantity to constitute an economical batch is all the more important. 6
- 7. ELEMENTS OF COST 7 Element of cost Materials Labour Expenses Direct Indirect Direct Indirect Direct Indirect
- 8. 8 MATERIAL: The substance from which the finished product is made is known as material. (a) DIRECT MATERIAL: is one which can be directly or easily identified in the product Eg: Timber in furniture, Cloth in dress, etc. (b) INDIRECT MATERIAL: one which cannot be easily identified in the product.
- 9. EXAMPLES OF INDIRECTMATERIAL At factory level – lubricants, oil, consumables, etc. At office level – Printing & stationery, Brooms, Dusters, etc. At selling & dist. level – Packing materials, printing & stationery, etc. 9
- 10. 10 LABOUR: The human effort required to convert the materials into finished product is called labour. (a) 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. (b)INDIRECTLABOUR:is one which cannot be conveniently identified or attributed wholly to a particular job, productorprocess.
- 11. 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. 11
- 12. 12 OTHEREXPENSES:arethoseexpensesotherthan materialsandlabour. DIRECTEXPENSES: arethoseexpenseswhichcanbe directlyallocatedtoparticularjob, processor product.Eg:Exciseduty,royalty,specialhire charges,etc. INDIRECTEXPENSES: arethoseexpenseswhich cannotbedirectlyallocatedtoparticularjob, processorproduct.
- 13. 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. 13
- 14. 4. COST CLASSIFICATION Classification On basis of : Nature Function Direct & indirect Variability Controllability Normality Financial accounting classification Time Planning and control Managerial decision making 14
- 15. ON THE BASIS OF NATURE Materials Labor Expenses 15
- 16. 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 16
- 17. ON THE BASIS OF VARIABILITY Fixed costs Variable costs Semi variable costs 17
- 18. ON THE BASIS OF CONTROLLABILITY Controllable costs Uncontrollable costs ON THE BASIS OF NORMALITY Normal costs Abnormal costs 18
- 19. ON THE BASIS OF FINANCIAL ACCOUNTS: Capital costs Revenue costs Deferred revenue costs 19
- 20. ON THE BASIS OF TIME: Historical costs Pre determined costs ON THE BASIS OF PLANNING AND CONTROL: Budgeted costs Standard costs 20
- 21. ON THE BASIS OF MANAGERIALDECISION 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 21
- 22. Thank You 22