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Cost Sheet

Cost Sheet

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Published by tanbir singh

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Categories:Types, School Work
Published by: tanbir singh on Aug 21, 2010
Copyright:Attribution Non-commercial


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Cost AccountingChapter Module-1 - Introduction to Cost AccountingDefinitionCost: -
Generally cost refers to all expenses incurred in producing aproduct or rendering service. But, from the cost accounting point of view “Cost is a normal sacrifice of resources in the creation of productor services”.
Costing: -
Costing is defined as “the technique and process of ascertaining cost of a given thing”.According to CIMA it is defined as “the establishment of budgets,standard, costs and actual costs of operations, processes, activities orproducts and the analysis of variances, profitability or the social use of funds”.
Cost Accounting: -
Cost accounting is defined as “the process of accounting for cost from the point at which expense is incurred orcommitted to the establishment of its ultimate relationship with costcenters and cost units. The institute of Cost and Works Accountant ICWA defines “Costaccounting is the technique and process of ascertainment of cost. Costaccounting is the process of accounting for cost, which, begins withrecording of expenses or the basis on which they are calculated andend with preparation of statistical data.
Cost Accountancy
: - Cost accountancy is used to describe theprinciples, conventions, techniques and systems which are employedin a business to plan and control the utilization of its resources.It is defined as “the application of costing and cost accountingprinciples, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability. It includes thepresentation of information derived there-from for the purpose of marginal decision making”.
Cost Centre: -
Cost centre is defined as “a place or location ormachine or person or thing for which cost can be ascertained”. It isthe segment of activity or area of responsibility for which costs areaccumulated”.Cost Unit: - Cost unit is defined as “a unit of a product or service orcombination of them in relation to which costs are ascertained orexpressed”.
Objectives of Cost Accounting: -
 The main objectives or purposesof Cost accounting are
 Ascertainment of Cost 
: -
It enables the Management to ascertainthe cost of product, job, contract, services etc. The cost is calculated,by aggregating expenses subject to certain concepts and conventions.
 Analysis of Cost 
- Total cost is broken down into severalconstituent parts according to some basis for eg. Material labourexpenses. The detail information about these parts helps to know thesignificance of each in the total cost.
Cost control 
: -
The object is to minimize the cost of manufacturing,comparison of actual cost with standards, reveals the discrepancies,variances. If the variances are adverse the management enters intoinvestigation so as to adopt corrective action immediately.
Reduction of cost 
- Reduction of cost refers to the permanentreduction in the cost of a product or service without impairing thequality and without affecting the purpose for which it is intended to beused. Due to an instance competition in the market, the managementhas little scope to vary the sales price. In such situation, it becomesnecessary to look into the activities that reduce the cost component.
Fixation of selling price
- Cost accounting provides costinformation on the basis of which selling prices of products or servicesmay be fixed. In periods of depression cost accounting guides indeciding the extent to which the selling prices will be reduced to meetthe special situation.
Guide to business policy 
: - Cost accounting aims at serving theneeds of management in conducting the business with more efficiency.Cost data provides guidelines for various managerial decisions, likemake or buy, selling below cost, utilization of idle plant capacity,introduction of a new product etc.
Functions of Cost accounting 
In order to pursue the objectives cost accounting is expected toperform the following functions.
. Cost book keeping
: -
It is a process of recording the relevanttransactions to facilitate ascertainment of cost various accounts aremaintained according to the principles of cost accounting.
Cost Analysis
: - This is the function of establishing the relationshipbetween the cost and the various determinants of cost. It involves the
determination whether a cost is direct cost or indirect cost, normal costor abnormal cost etc. It serves costing objective.
Cost control 
: -
This is the function of establishing relationshipbetween what should happen and what has happened. Cost accountingfacilitates preparation of standard cost and their comparison withactual cost and the analysis of variances to their causes and remedialmeasures.
Cost Comparison
- This is the function of comparing cost of alternative prospects, proposals, plans and actions. This comparisonhelps to take the right decision at crucial point of time.
: -
Another important function of cost accounting is tomeasure or scientifically estimate the cost of a job or work order toquote the price. Getting the order depends on the appropriatequotations, lower price may fetch more order and higher price mayfetch less order.
Cost Planning
: -
This is the function of planning involved inaccounting for cost every cost segment or element should be properlyplanned and incurred accordingly. The overall planning of theorganization should flow down to the level of incidence of cost in orderto achieve the goal.
Cost Budgeting
: -
This is the function of facilitating to formulatethe cost budgets; the budget sets the overall limit of expenses and thecost information guides to be within the set frame works.
Advantages of Cost accounting: 
Following are the advantages of Cost Accounting:
Action against Unprofitable activities:-
It reveals unprofitable activities, inefficiencies such as wastage of materials and wastage of resources, inadequate utilization etc. Themanagement is able to concentrate on profitable jobs and considerchange or closure of the unprofitable jobs.
Facilitates Decision Making
: It provides necessary data alongwith information to the management to take decision on any matterrelating to the business.
Assists in fixing prices: -
The various types of cost accounting aremuch helpful in fixing the cost and selling price of a product.
Improve Efficiency:-

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