ALSARHANI YAHYA1 COST ACCOUNTING CH (1)

ALSARHANI YAHYA2 DEFINITION OF COST ACCOUNTING It is to hard to get definitely the definition for the cost of accounting. This kind of accounting are trying to provide information belong to the cost element and recording, analysing and posting to the cost center and operating order for calculated the cost of production, units and prepare statements,reporting for knowing where the high cost and how the management decreasing this cost.

ALSARHANI YAHYA3 Cost of accounting type of important analysing and controlling which they giving information and data for the administration to help them to have right decision. We can say the cost of accounting are collecting,analysing and explaining the cost data for every department in the company and guiding them to giving the right decision for planning and controlling operation

ALSARHANI YAHYA4 What is the different between cost accounting & financial accounting Different wayCost accountingFinancial accounting The user of financial reporting Internal userExternal user :creditors, investors and government The reportsElective reports and related to part of company Compulsory report and related to whole company. Criteria of prepare the report According to the company rules, instruction based from management According to the international accounting criteria Information typeHistorical,presented and future data Historical data Quantity of the dataThe data are detailed and provide data by amount and quantity. The data are generality and provide just by amount.

ALSARHANI YAHYA5 The goals for cost accounting Help the management for decision making Help the management for planning. Help the management for controlling of cost elements. Measure the cost intonation. Measure efficiency.

ALSARHANI YAHYA6 classification of costs They are 5 methods to classification the cost element they are: 1.Natural. 2.Function. 3.The relationship between cost element and the unit of product. 4. The relationship between cost element and the size of product. 5.The relationship between cost element and the available capacity &non available capacity.

ALSARHANI YAHYA7 Natural classification Natural cost materials directindirect labor directindirect Other cost directindirect

ALSARHANI YAHYA8 Material cost Material cost: it is the cost which need for using in product and it is the major element for convert operation to be the final product. Direct material cost such as : wood, plastic,… Indirect material cost such as : cleaners

ALSARHANI YAHYA9 Labor cost & other cost Labor cost : it is all the cost paid from the company for the labor like salaries, bonus,retired fund, health insurance,… Direct labor cost: salaries, retired,insurance Indirect labor cost : cleaner salaries Other cost :All cost not belong to the material or labor cost like: depreciation for equipment,factory rent,insurance.

ALSARHANI YAHYA10 Classification Functionally function production Product department material labor expenses Service product material labor expenses marketing materiallaborexpenses management materiallaborexpenses

ALSARHANI YAHYA11 The relationship between cost element and the unit of product. Cost element& Unit of product Direct cost MaterialLaborService Indirect cost Product cost indirect Marketing cost Finance and management cost

ALSARHANI YAHYA12 The relationship between cost element and the size of product. COST ELEMENT & Size of product Variable costFixed costMixed cost

ALSARHANI YAHYA13 Variable Cost: The costs which changing usually with the change of unit product and these like :the cost of direct materials or direct salaries. SIZE OF PRODUCT Variable cost by R.O variable costs by Per unit 3333

ALSARHANI YAHYA14 Fixed cost: The costs which not changing with the change of unit product such as ( rents the depreciation for machines and equipment…) SIZE OF PRODUCT Fixed cost by R.O 300 Fixed costs by Per unit

ALSARHANI YAHYA15 Mixed cost: The costs which have both variable and fixed costs like electric costs,indirect labor, Maintenance … This cost called the semi - variable costs or semi-fixed costs.

ALSARHANI YAHYA16 The relationship between cost element and the available capacity &non available capacity. Fixed costs are divided into: 1.Relationship between fixed cost and available capacity. 2.Relationship between fixed cost and non available capacity. To calculated the available capacity Available capacity =total fixed cost x available capacity / available power

ALSARHANI YAHYA17 To calculated the non available capacity Available capacity =total fixed cost x non available capacity / available power. Available capacity: it is the maximum energy of the business conducted after the exclusion the inevitable and non inevitable breakdowns. Available power : it is the maximum energy of the business conducted after the exclusion the inevitable breakdowns.

ALSARHANI YAHYA18 Non Available capacity: it is the wasted Energy for the reason of breakdowns maximum inevitable and non inevitable breakdowns.

ALSARHANI YAHYA19 The financial statement in the trade companies Income statement for ABC company Sales Revenue xxx Less: The cost of good sold: Inventory in the first period xxx purchases xxx The total of the available Of cost goods for sale xxx Less: Inventory in the last period xxx The cost of good sold xxx Profit or loss XXX Less: Expenses (sales expense & management expenses) xxx Net income or loss xxx

ALSARHANI YAHYA20 The financial statement in the factories Income statement for ABC company Sales Revenue xxx Less: The cost of good sold: Cost product in the first period xxx Cost product during the period xxx The total of the available Of cost product for sale xxx Less: Cost product in the last period xxx The cost of good sold xxx Profit or loss xxx Less: Expenses (sales expense & management expenses) xxx Net income or loss xxx

Advantages of cost accounting 1.It helps the management in determining the cost of production of a given volume of output and thereby fixing the prices; 2.It helps the management in identifying the profitable and unprofitable lines of business; 3.It provides information upon which estimates and tenders are based; 4.It guides future production policies; 5.It provides valuable information for management decision making and forward planning; 6.With effective cost control methods, cost accounting helps the management to increase the overall profitability of the organization.

Limitations of cost accounting The following are the main limitations of cost accounting: 1.Cost accounting lacks a uniform procedure – different cost accountant may have different procedures; 2.There are a large number of conventions, estimates and flexible factors such as classification of costs into its elements, issue of materials on average or standard prices, apportionment of overhead expenses, etc. 3.For getting the benefits of cost accounting, many formalities are to be observed by a small and medium size concerns; 4.The contribution of cost accounting for handling futuristic situations has not been much

Elements of costs The following are main elements of costs: 1.Direct materials: Direct materials are those materials which can be identified in the product and can be conveniently measured and directly charged to the product. Thus, these materials directly enter the production and form a part of the finished product. 2.Direct labour: Direct labour is all labour expended in altering the construction, composition, confirmation or condition of the product. In simple words, it is that labour which can be conveniently identified or attributed wholly to a particular job, product or process or expended in converting raw materials into finished goods.

3. Overheads: Overheads may be defined as the aggregate of the cost of indirect materials, indirect labour and indirect expenses. Overheads comprise of all expenses incurred for or in connection with the general organization of the whole or part of the undertaking. The main groups into which overheads may be sub-divided are: (i)Manufacturing overheads; (ii)Administrative overheads; (iii)Selling overheads; (iv)Distribution overheads; and (v)Research and development overheads.

Cost sheet Cost sheet is a statement designed to show the output of a particular accounting period along with break-up of costs. The data incorporated in cost sheet are collected from various statements of accounts which have been written in cost accounts, either day-to-day or regular records. Cost sheet is a memorandum statement. Therefore, it does not form part of double entry cost accounting records. In spite of this, the relationship between cost sheet and financial accounts which are maintained on double entry system is very important as cost sheet drives its data from financial accounting.

Advantage of Cost sheet The main advantages of a cost sheet are: 1.It discloses the total cost and the cost per unit of the units produced during the given period; 2.It enables a manufacturer to keep a close watch and control over the cost of production; 3.By providing a comparative study of the various elements of current cost with the past results and standards costs, it is possible to find out the causes of variations in the costs and to eliminate the variations; 4.It acts as a guide to the manufacture and helps him in formulating a definite useful production policy;; 5.It helps the businessman to submit quotations with reasonable degree of accuracy against tenders for the supply of goods.