of cost Accounting Definition According to ICMA London cost accounting is the application of costing and cost accounting principles methods and techniques to the science art and practice of cost control and ascertainment of profitabilityit includes the presentation of information for the purpo ID: 1028981
Download Presentation The PPT/PDF document "Cost accounting Introduction" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
1. Cost accounting
2. Introduction of cost Accounting
3. DefinitionAccording to ICMA London, cost accounting is the application of costing and cost accounting principles ,methods and techniques to the science, art and practice of cost control and ascertainment of profitability.it includes the presentation of information for the purpose of decision making.
4. Objectives of cost accountingTo find out the total cost and cost per unitTo disclose the proportion of different elements in the total costTo provide necessary data for fixing the selling priceTo ascertain the profitability of each productTo identify the sources of wastages and lossesTo help in the preparation of budgets and its implementationTo formulate incentive bonus plans and implement themTo exercise effective control on the idle times of men and machines
5. Advantages of cost accountingHelps in decision makingHelps in fixing pricesFormulation of future plansAvoidance of wastageHighlights causesReward to efficiencyPrevention of fraudImprovement in profitability
6. Demerits of cost accountingIt is unnecessaryIt is expensiveIt is a failureToo much of paper workRestricted applicability
7. Elements of cost Total cost Material Labour other expensesDirect Indirect Direct Indirect Direct Indirect overheads
8. Classification of costClassification according to nature elementClassification according to functionClassification according to variability a)Fixed cost b)variable cost c)semi-variable costClassification according to normality a)Normal cost b)Abnormal costClassification according to controllability a)controllable cost b)uncontrollable cost
9. Classification by time a)Historical cost b)Pre –determined costClassification according to managerial decisions a)Marginal cost b)Differential cost c)Imputed cost d)Replacement cost e)opportunity cost f)sunk costClassification according to capital and revenue a)capital costs b)Revenue costsClassification by association with products a)products cost b)period cost
10. Methods of costingJob costingContract costingBatch costingProcess costingUnit costingOperating costingMultiple costing
11. Techniques of costingHistorical costingDirect costingAbsorption costingUniform costingMarginal costingStandard costing
12. Cost unit A cost unit refers to a unit of product, service or time in relation to which costs may be ascertained or expressed.Cost CentreA cost Centre is a location ,person or item of equipment for which cost may be ascertained and used for the purpose of cost control
13. Cost sheetCost sheet is a statement.it provides information regarding the various elements of cost incurred in production.it discloses the total cost and the cost per unit of products manufactured during the given period.
14. Types of cost CentreProduction cost CentreService cost CentrePersonal cost CentreImpersonal cost CentreOperation cost CentreProcess cost CentreProfit Centre
15. Material controlMaterial control is defined as a systematic control over purchasing ,storage and consumption of materials,so as to maintain a regular supply of materials and avoiding at the same time overstocking
16. Objectives of material controlTo make available the right type of materials at the right timeTo ensure effective utilization of materialTo prevent over stocking of materials and consequent locking of materialsTo procure appropriately raw materials at reasonable priceTo prevent losses during storage of materialsTo supply information to the management
17. Pricing issues of materialPricing of materials may change from time to time.Materials are usually acquired by several deliveries at different prices.Actual costs can then take on several different values.Therefore, the materials pricing system adopted should be the simplest and the most effective one.
18. Methods of stock valuationFirst-in-first-out(FIFO)Last-in-first-out(LIFO)Weight average cost (WAVCO)Specific identification/unit cost method
19. First-in-first-outThis method assumes that the first stock to be received is the first to be sold.The cost of materials used is based on the oldest prices.The closing stock is valued at the most recent prices.
20. Last-in-first-out (LIFO)This method assumes that the last stock to be received is the first to be sold.Therefore, the cost of materials used is based on the most recent prices.The closing stock is valued at the oldest prices.
21. This method assumes that the cost of materials used and closing stock are valued at the weighted average cost.Weight average cost (WAVCO)
22. Specific identification/unit cost methodThis method assumes that each item of the stock has its own identity.The costs of materials used and closing stock are determined by associating the units of stock with their specific unit cost.
23. Economic Order Quantity (EOQ)EOQ is the order quantity that minimizes total inventory carrying costs and ordering costs.Ordering costs are costs that are incurred on obtaining additional inventories. They include costs incurred on communicating the order, transportation cost, etc. Carrying costs represent the costs incurred on holding inventory in hand. They include the opportunity cost of money held up in inventories, storage costs, spoilage costs, etc.EOQ =2*O*QCWhere EOQ = Economic Order Quantity O= order cost per orderQ = Annual quantity required in units C =Carrying cost per unit per annum
24. ExampleThe annual consumption of a part “X” is 5000 units. The procurement cost per order is $10 and the cost per unit is $0.5. The storage and carrying cost is 10% of the material unit cost.Required: Calculate the EOQ
25. SolutionO= $10 Q=5000, C= $0.5*10%EOQ = 2 O QCEOQ =2 * 5000 *100.5*10%= 1414 units
26. Level settingIt is to determine the correct or most optimal stock level so as to avoid overstocking or under- stocking of materials.These levels are known as the Maximum, Minimum and Re-order levels.
27. Re-order levelThe level of stock of material at which a new order for the material should be placed.The formula:Re-order level= (Maximum usage * Maximum lead time )
28. Maximum levelThe maximum stock level is highest level of stock planned to be held.Any amount above the maximum level will be considered as excessive stock.The formula:Max level = re-order level + Re-order quantity(EOQ) –Min anticipated usage in Minimum lead
29. Minimum level/Safety stockThe minimum level is that level of stock that provides a safety buffer in the event of increased demand or reduced receipt of stock caused by the lengthening of lead time.The stock level should not be allowed to fall below the safety stock.Min level= Re-order level – Avg. usage in avg. lead time
30. EXAMPLEAverage usage Minimum usage Maximum usage Order Quantity1000 units per day 800 units per day 1350 units per day 9000 unitsDelivery reliably expected at the beginning of the fourth day.Required: Find the three control levels.
31. Re-order level= (Maximum consumption * Maximum re-order period )= 1350 units *4= 5400 unitsMinimum level= Re-order level – Average usage in average lead time= 5400 units – (800 units *4)= 2200 unitsMaximum level = re-order level + EOQ –Minimum anticipated usage in Minimum lead= 5400 units +9000 units – (800 units *4)= 11200 units
32. THANK YOU