Cost and Management Accounting

Course Marks Duration No. of Session

= MMS/PGDM = 60+40 (2 tests+1 ppt) = 3 Hours per session = 15

References: Cost and Management Accounting by: Khan and Jain T. Ghosh Shukla Grewal Horngreen
Prof. A. Damani, FCA,MBA,Mcom,SET 1

Introduction .
Business Accounting System consists of three parts : Financial Accounting Cost Accounting and Management Accounting

 The information generated from these systems are used for planning implementation and control

 Accounting information- analysis Management Accounting-decision making Cost accounting control and reduction of costs.

 Tools of Management accounting

Financial Accounting Cost Accounting Statistical Techniques Inflation Accounting Taxation Tools of Financial Analysis Cash flow and funds flow statements , Ratio analysis, Trend Analysis etc.

Methods of costing- for recording and identifying costs

Unit / Direct costing Absorption costing Process costing Job costing Contract costing Variable costing

Techniques of costing- for analyzing costs

Marginal costing Standard costing Activity based costing Cost Volume profit Analysis Cost control and cost management

Classification of costs
Costs can be classified on the following basis: Nature of element Functions Identifiabiltiy Variability Controllability Normality Financial accounting treatment Time Association with product Planning and control

Nature of element
Materials Labour Overheads

Functions
Manufacturing/Production costs all costs from time of procuring materials to conversion into finished goods Administrative costs

Selling and distribution costs

Identifiabiltiy
Direct costs Indirect costs

Variability
Fixed costs Variable costs Semi variable costs

Controllability
Controllable costs Uncontrollable costs

Normality
Normal costs Abnormal costs

Treatment in Financial accounting

Capital Revenue

TIME
Historical costs can be identified only after they are incurred and recorded. They may vary from company to company. It depends on the amount recorded

E.g. a machine purchase domestically and imported will have different costs.

Predetermined costs: known in advance. E.g. manufacturing costs of a shirt from a process will remain the same.

Association with product

Product costs total costs associated with a single unit. Sum of direct and indirect costs Period costs pertaining to a particular period than to production. E.g. salary of accountant, rent paid, etc.

Planning and control

Budgeted costs - estimated Standard costs as per industry

Important terms for Decision-making

Marginal costs costs to manufacture one additional unit Differential costs: change in costs due to change in level of activity/output Sunk cost Notional/Imputed costs no third party cash outflow. E.g salary to proprietor, rent on proprietors own property, etc. Opportunity costs Replacement costs cost of replacing an asset in its present condition Avoidable costs & Unavoidable costs e.g. product is discontinued Future costs Joint costs Discretionary costs whose contribution to revenue or profit cannot be conclusively identified. E.g. how much has advertisement costs contributed to sales. Committed costs: are those which the business has committed due to decisions and actions taken by management in past. E.g. Depreciation. Advance Income tax paid, Rent contract, etc.

Marginal costs costs to manufacture one additional unit Differential costs: change in costs due to change in level of activity/output Sunk cost Notional/Imputed costs no third party cash outflow. E.g salary to proprietor, rent on proprietors own property, etc. Opportunity costs Replacement costs cost of replacing an asset in its present condition Avoidable costs & Unavoidable costs e.g. product is discontinued Future costs Joint costs Discretionary costs whose contribution to revenue or profit cannot be conclusively identified. E.g. how much has advertisement costs contributed to sales. Committed costs: are those which the business has committed due to decisions and actions taken by management in past. E.g. Depreciation. Advance Income tax paid, Rent contract, etc.

Presentation topics (from session 2) see Guidelines on next slides

Group 1: Transfer pricing Group 2: Operating costing/costing of service sector Group 3: Joint product and By-product Group 4: Variance costing Group 5: Target costing and life cycle costing Group 6: Process costing Group 7: Key factor analysis in marginal costing Group 8: Integrated and non-integrated costing Group 9 JIT, Material requirement planning Group 10: Responsibility accounting

Presentation guidelines
Total duration of presentation EXACT 25 minutes. Please rehearse for time. 5 minutes for Q&A 14 slides ONLY 1st slide team members and title Last slide Academic references ONLY 7 lines in each slide ONLY 7-9 words in each line Include practical examples if required (can exceed lines and words)

Cost sheet format

Format hyperlink Cost sheet format.xls (open hyperlink command)