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Cost and Management Accounting Unit 1

Cost and Management Accounting Unit 1

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Published by Minisha Gupta
This provides an Introduction to Cost and Management Accounting
This provides an Introduction to Cost and Management Accounting

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Published by: Minisha Gupta on Jan 20, 2010
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COST AND MANAGEMENT ACCOUNTING

BY-: MINIHA GUPTA MANAGEMENT FACULTY RSD ACADEMY (COLLEGE OF MANAGEMENT AND TECHNOLOGY)

UNIT 1
TOPICS TO BE COVERED
        

Accounting For Management Role of Cost in Decision Making Comparison b/w Cost and Management Accounting Types of Cost Elements of Cost-: Labor, Material, Overheads Methods of costing Allocation and apportionment of cost. Preparation of cost Sheet Realization of cost and financial accounting

ACCOUTNING FOR MANAGEMENT

Accounting is a process of identifying, measuring and communicating economic information for-:
  

Planning Budgeting Controlling

The Functions of Management
Planning Acting Controlling

Feedback

Role of Cost in Decision Making

 

Determination of various costs help in deciding log and short term requirements of Firm. Helps managers in deciding the best decisions fruitful for the Firm. Various Costs play various roles. Different costs solves purpose of management.

Comparison between Cost and Management Accounting

the main object of cost accounts is to ascertain and control cost.

The main objective of MA is to provide useful information to management for decision making. It is concerned purely with the transactions relating to future.

It is based on both present and future transactions for cost ascertainment. It has a narrow scope as it covers matters relating to ascertainment and control of cost. It serves the needs of both internal management and external parties.

It has a wide scope in as much as it covers the areas of financial accounts, cost accounts, taxation etc. It serves the needs of only internal management.

It deals only with monetary transactions

It deals with both monetary and non monetary transactions.

COST

It is a foregoing or sacrifice, measured in monetary terms, incurred or potentially to be incurred to achieve a specific purpose.

Cost Elements

Material Cost-:

Physical Commodities Personnel Indirect Manufacturing Costs

Labor Cost-:

Factory Overheads -:

1.

On the basis of Elements of Cost
1. 2. 3. 4.

Material Cost Labour Cost Direct Expenses Overheads Production Cost Administration Cost Selling Cost Distribution Cost Finance Cost Research and Development Cost Variable Cost Fixed Cost Semi-Variable Cost Controllable Cost Uncontrollable Cost Normal Cost Abnormal Cost

2.

On the basis of Function
1. 2. 3. 4. 5. 6.

3.

On the basis of Variability
1. 2. 3.

4.

On the basis of Controllability
1. 2.

5.

On the basis of Normally
1. 2.

6. On the basis of Identify ability 1. Direct Cost 2. Indirect Cost 6. On the basis of Investment 1. Capital Cost 2. Revenue Cost 6. On the basis of Time 1. Historical Cost 2. Predetermined Cost 6. On the basis of Association with the Product 1. Product Cost 2. Period Cost 6. On the basis of Decision Making 1. Slink Cost 2. Out of Pocket Cost 3. Opportunity Cost 4. Imputed Cost 5. Marginal Cost 6. Replacement Cost 7. Avoidable and unavoidable Cost 8. Differential Cost 9. Relevant and Irrelevant Cost 10.Conversion Cost

Types of Costing Methods
1. 2. 3. 4. 5. 6.

Absorption Costing-: Fixed and Variable Costs Marginal Costing-: An addition to the costs is considered. Historical Costing-: Consideration to Actual cost Standard Costing-: comparison between actual and standard cost Differential Costing-: adhoc information used for evaluating the cost. Uniform Costing-: costing principles and techniques.

METHODS OF COSTING
SPECIFIC ORDER COSTING CONTINUOUS OPERATION COSTNG

Job Costing Contract Costing Batch Costing

Process Costing Operations Costing Unit Costing Service Costing Joint and By Product Costing

Allocation of Cost

Costs are allocated for the purpose of-:
  

Valuing inventory Controlling costs Taking decisions Assignment of Direct cost Allocation of indirect cost Allocation of service department costs Absorption of costs by products

Allocation Process-:
   

Apportionment of Cost
   

Planning and controlling helps in setting benchmarks. It all is practiced for minimizing Cost. Reasonable to identify controllable and non controllable costs for each individual. The most relevant costs are-:
1. 2. 3. 4. 5. 6. 7. 8. 9.

Budgets and Standard Cost Fixed and Variable cost Differential and Marginal Cost Controllable and Non Controllable cost Opportunity Cost Sunk Cost Imputed Cost Out of pocket cost Replacement Cost

“PREPARATION OF COST SHEET”

A statement which shows the details regarding the total cost of the job or a product. It can include no of columns as per the requirements. It discloses various components of the cost as required by management for effective decision making.

PARTICULARS Opening Stock Raw Materials Add: Purchase Add: Carriage Inward Add: Octroi and Customs Duty Less: Closing Stock of Raw Materials Cost of Direct Material Consumed Add : Direct Wages PRIME COST Add: Works of Factory Overheads Indirect Materials Indirect Wages Leave Wages Bonus to Workers Overtime Wages Fuel and Power Rent and Taxes Insurance Factory Lightings Supervision Works Stationery Canteen and Welfare Expenses Repairs Works Salaries Depreciation of Plant and machinery Works Expenses Gas and Water Technical Director’s Fees Laboratory Expenses Works Transport Expenses Works Telephone Expenses

PROFORMA OF COST SHEET
TOTAL COST

Rs.

TOTAL COST

Rs.

PARTICULARS Add: Opening Stock of Work-in-Progress Less: Closing Stock of Work-in-Progress Less: Sale of Waste ( Scrap ) WORKS COST Add: Office and Administration Overheads Office Salaries Directors Fees Office Rents And Rates Office Stationary and Printing Sundry Office Expenses Depreciation on Office Furniture Subscription to Trade Journals Office Lightings Establishment Charges Directors Travelling Expenses Consultants Fees Contribution to Provident Fund Postage Legal Charges Audit Fees Bank Charges Depreciation &Repairs of Office Equipments Bonus to Staff
COST OF PRODUCTION Add :Opening Stock of Finished Goods Less: Closing Stock of Finished Goods COST OF GOODS SOLD

TOTAL COST

Rs.

TOTAL COST

Rs.

PARTICULARS Add: Selling & Distribution Overheads Advertising Show Room Expenses Salesman’s Salaries and Expenses Carriage Outward Commission of Sales Agents Cost of Catalogues Expenses of Delivery Vans Collection Charges Travelling Expenses Cost of Tenders Warehouse Expenses Cost of Mailing Literature Sales Manager’s Salaries Insurance of Showroom Sales Director’s Fees Sales Office Expenses Rent of Sales Office Depreciation of Delivery Vans
Expenses of Sales Branch Establishments

TOTAL COST

Rs.

TOTAL COST

Rs.

Expenses

Packing

Branch Office Expenses
TOTAL COST OF SALES

Profit or Loss SALES

NON COST ITEMS
Non-cost items are those items which do not form part of cost of a product. Such items should not be considered while ascertaining the cost of a product. These are items included in the Profit & Loss A/c. These will not come in the cost sheet a) Income tax paid b) Interest on capital c) Interest on loan d) Profit/Loss on Sale of fixed assets e) Donations f) Capital Expenditure g) Discount on shares & Debentures h) Commission to Partners, Managers etc i) Brokerage j) Preliminary Expenses Written off. k) Wealth tax etc

Realization OF Cost Accounting and Financial Accounting

Both are similar to each other in the following cases-:
1.

2.

3.

4.

5.

6.

The fundamental principles of double entry is applicable in both systems. The invoices and vouchers constitute the common basis for recording the transactions. The results of business are revealed by both the systems of accounts. The causes for losses and wastages of a business are provided by both these systems of accounts. The determination of future business policy is guided by both these systems of accounts. A basis for comparison of expenses is being provided by both the accounting systems.

THANK YOU

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