Dr harshdev verma department of commerce ddugorakhpur university gorakhpur ID: 1018673
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1. COST ACCOUNTING Presented By:- . Dr harshdev verma, department of commerce , d.d.u.gorakhpur university gorakhpur. .
2. COST ACCOUNTINGCosting is a specialised branch of accounting. It has been developed because of limitations of financial accounts.In the present day it is absolutely necessary that a business concern should operate its activities with utmost efficiency and at the lowest cost.
3. Meaning Of Cost, Costing And Cost Accounting The term ‘cost’ has a wide variety of meanings. Different people use this term in different senses for different purposes. For example, while buying a book, you generally ask, “how much does it cost”? Here the cost means price. The costing terminology of the Institute of Cost and Works Accountants,London defines cost as “the amount of expenditure incurred on or attributable to a given thing”. Costing is the technique and process of ascertaining costs. In simple words costing is a systematic procedure of determining the unit cost of product/service.
4. OBJECTS AND MEANING OF COST ACCOUNTINGAnalysis and Ascertainment of costs: The main object of costing is to ascertain the cost of each product, process, department, service or operation.Presentation of costs for cost reduction and cost control: Important function of costing is to control and reduce costs.Planning and decision making: It has now developed as a tool in the hands of the management for planning and taking crucial decisions like pricing of product, introduction of new product in the market, make or buy decisions.
5. CONCEPT OF COSTThe “COST” refers to expenditure not the price of any goods.It’s the process of ascertaining cost(its principles & rules).
6. DEFINITION OF COST A/C.“The process of accounting for cost from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centre & cost units.”(I.C.M.A,London)2.The amount of expenditure incurred on or attributable to given thing.”(I.C.W.A,London)3.The is distinguish from from expenses & losses.
7. CLASSIFICATION OF COSTSThe main objective of costing is to ascertain cost of each product, process, department, service or operation. Costs can be classified into different categories depending upon the purpose of their classification.Classification by nature or element.Functional classification.Classification on the basis of behaviour.Classification on the basis of managerial decision making and control.
8. Classification on the basis of nature or element:- Direct Costs.Indirect Costs.
9. CLASSIFICATION BY NATUREELEMENTS OF COSTSINDIRECT COSTSDIRECT COSTSMATERIALLABOUREXPENSE
10. (1)Direct Cost:- These are costs directly attributable to producing a product. The following comes under the Direct Cost:-(i)Direct Material Cost:- It is the cost of material which can be directly allocated to a cost centre. Example:- Raw material consumed for production of a product.(ii)Direct Labour Cost:- It is the cost of wages of those workers who are readily identified or link with cost centre.(iii)Direct Expense:- These are the expenses other than direct material or direct labour which can be identified with cost centre.
11. (2)Indirect Costs:- These are the costs which can not be assign to any particular cost unit, i.e job product or process.(i) Indirect Material:- Material which cannot be directly allocated to a particular cost centre.(ii)Indirect Labour:- These are the wages of employees which are not directly allocable to a particular cost centre.(iii)Indirect Expense:- These are the expense other than the nature of material or labour and cannot be directly attributable to a particular cost centre.
12. FUNCTIONAL CLASSIFICATIONSPRIME COST = Direct Material +Direct Labour+ Direct Expense.FACTORY COST: Prime cost + Factory Overheads+ Opening stock of work- in- progress- closing stock of work- in- progress.COST OF PRODUCTION: Factory cost+ Admin overhead + R&D overheads.COST OF GOODS AVAILABLE FOR SALE: Cost of Production+ Opening stock for finished goods.
13. COST OF GOOD SOLD= Cost of good available- closing stock of finished goodsTOTAL COST= Cost of good sold + Selling & distribution overhead.
14. Classification on the basis of behaviour(i)Fixed costs: Costs which do not vary with the level of production are known as fixed costs.(ii)Variable Cost:- Costs that vary in direct proportion to the volume of production.(iii)Semi-variable costs:- Costs which contain both fixed and variable components are called semi -variable costs
15. Classification on the basis of Managerial decision making & control(I ) Marginal costs: Costs of producing one additional unit. It is useful for price fixation.(II)Opportunity costs: It refers to the value of sacrifice made for benefit of opportunity foregone in accepting an alternative course of action.(III)Normal & Abnormal costs: Normal costs are normally incurred at a given level of output, while Abnormal cost is an unusual or unexpected and due to some abnormal situation of the production.
16. .(IV) Sunk Costs: It is a cost which has been already incurred or sunk in the past. It is not relevant for decision making.(V)Imputed cost: The cost which do not involve any expenditure in real sense. They included in cost accounts only for taking managerial decisions.
17. Nature of Cost Accounting(I)Cost accounting is an organized body of knowledge.(II)These certain principles to which the technique of costing should be applied.(III) These principles and rules have been developed over a period of time by experience.(IV)Besides being a science, cost accounting is an art also. Its principles, rules and techniques are not static but dynamic.
18. (V)Although it is an organized body of knowledge, its principles can not be verified and proved by experiments. Hence, it is not an exact science. Since it is operated by human beings, so it is a behavioral science.(VI)Old principles and techniques are replaced by new. It not only lays down the rules but also shows the way of achieving the objectives for which it is installed.
19. Scope of Cost Accounting.1. Cost AscertainmentIn this region of cost accounting, cost accounting collects product's material, labor and overhead cost and try to calculate total and per unit cost of product. This total cost calculation will be based on historical or standard or estimated basis. After this, cost accountant will use any method of costing like specific order costing, operation costing, and direct costing technique.
20. 2. Cost RecordsIn this part of cost accounting, cost accountant maintains cost books, vouchers, ledgers, reports and other cost related documents for future comparison and reference. It will also be under the scope of cost accounting.
21. 3. Cost Control This is the end boundary of cost accounting scope. In this division, cost accountant used different techniques and methods for controlling the cost. Save One Rupees in the cost of product means we have earned one rupees in the production of goods. So, Cost accountant uses budgetary control, standard costing, break even point analysis and many other techniques for controlling the cost.
22. ADVANTAGES OF COST ACCCOUNTINGCost accounting is not only helpful to provide cost information for internal use by management but it also helps management in setting objectives and programme of operation in comparing actual performance with expected performance.
23. BENEFITS PROVIDE DATA AND COST INFORMATIONDISCLOSE OPERATING EFFICIENCYHELPFUL IN DECISION MAKINGMAXIMUM UTILISATION OF RESOURCESHELP FINANCIAL ACCOUNTINGHELPFUL IN AVOIDING LOSSES
24. RELATIONSHIP BETWEEN COST AND MANAGENENT ACCOUNTING
25. THE FOLLOWING ARE THE MAIN POINTS OF RELATION BETWEEN COST AND MANAGEMENT ACCOUNTING:-1)OBJECT : The object of cost accounting is to record the cost of producing a product or providing a service. The cost is recorded product wise or unit wise. Besides recording, it deals with cost control, matching of cost with revenue and decision-making. The purpose of management accounting is to provide information to the management for planning and co-ordinating the activities of the business.
26. 2.SCOPE : The scope of management accounting is very wide. It includes financial accounting, Cost accounting, budgeting, tax planning, reporting to management and interpretation of financial data. On the other hand , cost accounting deals primarily with cost ascertainment.3.NATURE : Management accounting is generally concerned with the projection of figures for future. The policies and plans are prepared for providing future guidelines.Cost accounting uses both past and present figures.
27. 4.DATA USED : In cost accounting only those transactions are taken which can be expressed in figures only quantitative aspect is recorded in cost accounting. Management accounting uses both quantitative and qualitative information.5.DEVELOPMENT : The development of cost accounting is related to industrial revolution. Financial accounting could not satisfy information need of management.Cost accounting was thus evolved as supplementary accounting methods. Cost accounting was able to provide information not only about cost structure but also for planning and decision-making.Management accounting has developed only in the last 30 years.Management accounting and cost accounting are both complementary subjects.
28. 6.PRINCIPLE FOLLOWED : Certain principles and procedures are followed for recording cost of different products. The same rules are applicable at different times too .No specific rules and procedures are followed in reporting management accounting.The information is prepared and presented as is required by the management.
29. BREAK EVEN POINT
30. DefinitionThat point of sales volume at which total revenue is equal to total cost.It is a point of no profit no lossBreak Even Total sales = Total Cost
31.