Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
41Activity
0 of .
Results for:
No results containing your search query
P. 1
Notes on Costing Theory

Notes on Costing Theory

Ratings: (0)|Views: 388|Likes:
Published by api-19753808

More info:

Published by: api-19753808 on Nov 28, 2009
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

03/18/2014

pdf

text

original

FINAL C.A.
COSTING \u2013 THEORY NOTES
INDEX

Chapter
Topic
Page Number
No.
1
Basic cost concepts
01-12
2
Marginal Costing
13-25
3
Areas of decision making
26-32
4
Relevant Costing
33-33
5
Standard Costing
44-44
6
Pricing Policy
45-53
7
Costing of Service sector
54-58
8
Transfer Pricing
59-66
9
Target Costing
67-75
10
Life Cycle costing
76-80
11
Just in Time
81-89
12
Material Requirement Planning
90-92
13
Enterprise Resource Planning
93-95
14
Activity Based Costing
96-104
15
Total Quality Management
105-111
16
Value Chain Analysis
112-123
17
Budgetary Control
124-142
All the chapters carry questions from past examinations (theory) at the end along
with suggested answers.
1
CHAPTER 1 \u2013 BASIC COST CONCEPTS
Meaning of Cost:
Cost refers to any amount of expenditure incurred / attributable to any particular thing.
Costing: The method of ascertaining the cost and thereby controlling it is referred to as
costing.
Cost Accounting: The process of accounting for cost which begins with recording of income
and expenditure or the bases on which they are calculated and ends with the preparation of
periodical statements and reports for ascertaining and controlling costs.
Question I:
State the objectives of Cost Accounting.
Objectives of Cost Accounting:
The primary objective of study of cost is to contribute to profitability through Cost Reduction
and Cost Control. The following objective of Cost Accounting can be identified.
1.Ascertainment of Cost: This involves collection of cost information, by recording them
under suitable heads of account and reporting such information on a periodical basis.

2.Determination of selling price: Selling price is influenced by a number of factors. However prices cannot be fixed below cost save in exceptional circumstances. Hence cost accounting is required for determination of proper selling price.

3.Cost Control and Cost Reduction: In the long run, higher profits can be achieved only
through Cost Reduction and Cost Control.

4.Ascertaining the profit of each activity: Profit of each department / activity / product can be determined by comparing its revenue with appropriate cost. Hence Cost Accounting ensures profit measurement on an objective basis.

5.Assisting management in decision-making: Business decisions are taken after conducting Cost-Benefit Analysis. Hence Cost and benefits of various options are analysed and the Manager chooses the least cost option. Thus Cost Accounting and reporting system assists managers in their decision making process.

Question II:
Classification of costs:
a. On the basis of Time period:
1. Historical Costs: Costs relating to the past period, which has already been incurred.
2. Current Costs: Costs relating to the present period.
3. Pre-determined Costs: Costs relating to the future period; Cost, which is computed in
advance, on the basis of specification of all factors affecting it.
b. On the basis of Behaviour / Nature / Variability:
2

1.Variable Costs: These are costs which tend to vary or change in relation to volume of production or level of activity. These costs increase as production increases and vice- versa e.g. cost of raw material, direct wages etc. However, variable costs per unit are generally constant for every unit of the additional output.

Costs
Output

2.Fixed Costs: The cost which remain fixed irrespective of the change in the level of activity / output. These costs are not affected by volume of production e.g. Factory Rent, Insurance etc. Fixed Costs per unit vary inversely with volume of production i.e. if production increases, fixed costs per unit decreases and vice-versa. Sometimes, these are also known as Capacity Costs or Period Cost.

Cost
Output
For decision-making purpose Fixed Costs are further sub-classified into (a) Committed
Fixed Costs and (b) Discretionary Fixed Costs.
Committed Fixed Costs
Discretionary Fixed Costs
These are costs that arise from the
possession of
\ue000

Plant, building and equipment (e.g. depreciation rent, taxes insurance premium etc.) or

\ue000
A basic organization (e.g.
salaries of staff)
These are costs incurred as a result of
management\u2019s discretion.

It arises from periodic (usually yearly) decisions regarding the maximum outlay to be incurred, and

It is not tied to a clear cause and effect
relationship between inputs and outputs

These costs remain unaffected by any short-term changes in the volume of production.

These cannot be changed in the very short-
run.

Any reduction in committed fixed costs under normal activities of the concern would have adverse repercussions on the concern\u2019s long term objectives.

Discretionary fixed Cost can change from year to year, without disturbing the long-term objectives.

Such costs cannot be controlled.
These costs are controllable.

3.Semi-variable Costs: These are those costs which are party fixed and partly variable. These are fixed upto a particular volume of production and become variable thereafter for the next level of production. Hence, they are also called Step Costs. Some examples are Repairs and Maintenance, Electricity, Telephone etc.

Activity (41)

You've already reviewed this. Edit your review.
1 hundred reads
1 thousand reads
my_khan20027195 liked this
Shameen liked this
my_khan20027195 liked this
nikth_jain liked this
maheshwarishruti liked this
Amit Murmu liked this
tahir777 liked this

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->