1. Cost Accounting
Dr. S.S.Jadhav

2. COST ACCOUNTING (ACCT – 232)
Contact hours
No of
Weeks
Contents 9 3
Introduction : Definition & meaning of cost accounting, cost terminology, classification of costs and calculation of various cost. 6 2
Job Costing: Concept, Job costing systems, Job costing in manufacturing, actual v/s normal costing, job costing systems in manufacturing.
Activity Based Costing: Simple v/s Activity based costing system, cost hierarchy, cost products or services using activity based costing, ABC v/s ABM 12 4
Process Costing: Process Costing methods, job order costing and spoilage, job costing & rework and accounting for scrap.
Cost Allocation: Joint Products v/s By Products, approaches to allocating joint costs and accounting for by-products. 42 14
Total

3. UNIT - 1 Definition & meaning of cost accounting Cost terminology
Classification of costs and calculation of various cost.
Model Paper
Quiz
Home Assignment

4. INTRODUCTION
COST ACCOUNTING

5. 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

6. COST ACCOUNTING - INTRODUCTION
Accounting for determination and control of costs.
COST ACCOUNTING: The Institute of Cost and Management Accountant, England (ICMA) has defined Cost Accounting as – “the process of accounting for the costs from the point at which expenditure incurred, to the establishment of its ultimate relationship with cost centers and cost units. In its widest sense, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned”.
Cost Accounting = Costing + Cost Reporting + Cost Control.

7. COST - MEANING
Cost means the amount of expenditure ( actual or notional) incurred on, or attributable to, a given thing.

8. OBJECTIVES OF COST ACCOUNTING
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

9. 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.

10. ELEMENTS OF COST Element of cost Materials Labour Expenses
Direct Indirect

11. 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.

12. 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.

13. 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) INDIRECT LABOUR: is one which cannot be conveniently identified or attributed wholly to a particular job, product or process.

14. 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.

15. OTHER EXPENSES: are those expenses other than materials and labour
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.

16. 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.

17. 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

18. 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.)     

19. 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        

20. COST CLASSIFICATION – ON THE BASIS OF
Nature
Function
Direct & indirect
Variability
Controllability
Normality
Financial accounting classification
Time
Planning and control
Managerial decision making

21. ON THE BASIS OF NATURE
Materials
Labour
Expenses

22. 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

23. ON THE BASIS OF VARIABILITY
Fixed costs
Variable costs
Semi variable costs

24. ON THE BASIS OF CONTROLLABILITY
Controllable costs
Uncontrollable costs
ON THE BASIS OF NORMALITY
Normal costs
Abnormal costs

25. ON THE BASIS OF FINANCIAL ACCOUNTS:
Capital costs
Revenue costs
Deferred revenue costs

26. ON THE BASIS OF TIME: Historical costs Pre determined costs
ON THE BASIS OF PLANNING AND CONTROL:
Budgeted costs
Standard costs

27. 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

28. TERMS IN COST ACCOUNTING
Cost unit
Cost centre
Cost estimation
Cost ascertainment
Cost allocation
Cost apportionment
Cost reduction
Cost control

29. METHODS OF COSTING Job costing Contract costing Batch costing
Process costing
Unit costing
Operating costing
Operation costing
Multiple costing

30. TYPES OF COSTING Uniform costing Marginal costing Standard costing
Historical costing
Direct costing
Absorption costing

31. Calculation of various cost
Direct Materials
Opening stock of materials
Add Purchases of materials
Less Closing stock of materials
(a) Materials consumed
Direct Wages
Direct Expenses
PRIME COST
Add Factory Overheads
Factory rent, rates, taxes Fuel-power and water Lighting and Heating Indirect wages Depreciation, Repairs
Salaries of Works Manager etc. Indirect Materials
Drawing office and works office expenses Depreciation on factory land and building Less Scrap value
Defective work
Add Work in progress (opening)
Less Work in progress (closing)
WORKS COST
Add Office/Administration overheads
Office rent, insurance, lighting, cleaning
Office salaries, telephone, law and audit expenses
General Manager’s salary
Printing and stationery
Maintenance, repairs, upkeep of office bldg
Bank charges and miscellaneous expenses
COST OF PRODUCTION
Add Opening stock of finished goods
Less Closing stock of finished goods
COST OF GOODS SOLD
Add Selling and Distribution Overheads
Showroom expenses, salesmen’s salaries
& commission, bad debts, discounts, warehouse rent, carriage outwards, advertising, delivery expenses, samples and free gifts etc.
COST OF SALES
Add Net Profit or deduct net loss: SALES

32. Home Assignment
What is Cost Accounting? How it is different from Management Accounting?
Explain the various types of Cost?

33. Sample Quiz -1
The basic types of cost accounting system are: A)Job order cost systems, activity based cost systems and process cost systems.
(B) Direct cost system and indirect cost systems
(C) Complete job cost systems and work in process cost system.
(D) Fixed cost systems and variable cost systems
2 In ABC, only one cost driver should be used in applying overhead. A) True (B) False
Elston's Metal Shop uses a job order cost system. It applies overhead to jobs at a rate of 150% of direct labor costs. Job No.2617 required $500bin direct labor costs. The job was initially budgeted to require $550 in direct labor costs. Overhead applied to No.2617 during the period amounted to: A) $550 (B) $750 (C) $825 (D) some other amount.
4 If the manufacturing overhead account at month end has a remaining debit balance, this indicates that overhead is under applied. A) True (B) False
A predetermined overhead application rate: A) Is used in a job order cost system but cannot be used in a process cost system
(B) Can be determined by dividing budgeted direct labor cost by the budgeted factory overhead costs.
(C) Is not generally accepted for financial reporting purpose.
(D) Tends to avoid wide variation in per-unit overhead cost because of short -run changes in volume.