SecLlon C

CosL AccounLlng
Mean|ng of Cost Account|ng
CosL AccounLlng ls Lhe appllcaLlon of accounLlng
and cosLlng prlnclples meLhods and Lechnlques
ln ascerLalnmenL of cosLs and Lhe analysls of
savlng/ or excess cosL lncurred as compared wlLh
prevlous experlence or wlLh sLandards
Wheldon
CosL accounLancy ls Lhe appllcaLlon of cosLlng and
cosL accounLlng prlnclples meLhods and
Lechnlques Lo Lhe pracLlce of cosL conLrol and
ascerLalnmenL of proflLablllLy
cope of Cost Account|ng
W CosL AscerLalnmenL
W CosL AccounLlng
W CosL ConLrol
ect|ves
W AscerLalnmenL of CosL
W CosL Analysls
W ulsclose sources of wasLage
W rovldlng daLa for prlce deLermlnaLlon
W AscerLalnmenL of roflL
W AsslsL ln budgeLlng
W AsslsL ln declslon maklng
W Crganlzlng cosL reducLlon programme
W 8eporLlng for managerlal plannlng
e|ated Concepts
L|ements of Cost
W ulrecL MaLerlal
W ulrecL Labour
W Cverheads
Components of 1ota| Cost
W rlme CosL
W lacLory CosL
W Cfflce CosL or CosL of roducLlon
W CosL of Coods Sols
W CosL of Sales
1ypes of Cost
W llxed CosL
W varlable CosL
W Semlvarlable CosL
Asorpt|on Cost|ng
L ls also known as convenLlonal or full cosLlng L
ls a process of charglng all cosL (boLh varlable
and flxed) Lo Lhe producL/ process under Lhls
Lechnlque lf Lhere ls same level of producLlon
cosL per unlL remaln same 8uL when Lhe level
of ouLpuL changes lL sLarLs changlng due Lo
Lhe presence of flxed cosL
Marg|na| Cost|ng
L ls Lhe process of ascerLalnlng Lhe marglnal
cosL and Lhe effecL on proflL of changes ln
volume or Lype of ouLpuL by dlfferenLlaLlng
beLween flxed cosL and varlable cosLs n Lhls
Lechnlque only varlable cosL ls charged Lo
producL/ process
|fference etween Asorpt|on and
Marg|na| Cost|ng
W ClasslflcaLlon of cosL luncLlonal/ 8ehavloral
W ncluded CosL llxed n varlable boLh / varlable
W ArblLrary ApporLlonmenL of llxed CosL on
arblLrary basls/ no such ApporLlonmenL
W CosL per unlL Changes / 8emalns ConsLanL
W valuaLlon of Closlng SLock
W ulfference beLween sales and cosL roflL/ ConL
W Pelpful ln managerlal declslonmaklng
W LsLabllshmenL of relaLlon among Cv
udget and udgetary Contro|
Accordlng Lo CMA
W 8udgeL ls a plan quanLlfled ln moneLary Lerms prepared
and approved prlor Lo a deflned perlod of Llme usually
showlng planned lncome Lo be generaLed and / or
expendlLure Lo be lncurred durlng LhaL perlod and Lhe
caplLal Lo be employed Lo aLLaln a glven ob[ecLlve
W 8udgeLary conLrol ls Lhe esLabllshmenL of Lhe budgeLs
relaLlng Lo Lhe responslblllLles of execuLlves Lo Lhe
requlremenLs of a pollcy and Lhe conLlnuous
comparlson of acLual wlLh budgeLed resulL elLher Lo
secure by lndlvldual acLlon Lhe ob[ecLlves of LhaL pollcy
or Lo provlde a flrm basls for lLs revlslon
|fference etween udget and Iorecast
W LvenLs lanned/ probable
W erlod AccounLlng / Long
W Coverage Whole buslness unlL/ llmlLed
secLlon
W 1ool of ConLrol ?es / no
W rocess posL/ pre
1ypes of udgets
8udgeL
Coverage
luncLlonal
8udgeL
MasLer
8udgeL
CapaclLy
llxed
8udgeL
llexlble
8udgeL
CondlLlon
8aslc
8udgeL
CurrenL
8udgeL
erlod
Long
1erm
8udgeL
ShorL
1erm
8udgeL
1ypes of Iunct|ona| udget
W Sales budgeL
W roducLlon 8udgeL
W MaLerlal 8udgeL
W Labour and ersonnel 8udgeL
W ManufacLurlng Cverhead budgeL
W AdmlnlsLraLlve CosL 8udgeL
W lanL uLlllzaLlon 8udgeL
W CaplLal expendlLure 8udgeL
W 8esearch and uevelopmenL CosL 8udgeL
W Cash 8udgeL
ero ased udget|ng
Accordlng Lo CMA Z88 ls a meLhod of budgeLlng
whereby all acLlvlLles are revaluaLed each Llme a
budgeL ls seL
teps
W denLlflcaLlon of declslon unlLs
W reparaLlon of declslon packages Lach package ls
a separaLe and ldenLlflable acLlvlLy
W 8anklng of declslon packages based on Lhe basls of
cosL beneflL analysls
W AlloLmenL of funds by followlng pyramld ranklng
sysLem
Cont|nued
Advantages
W nonrepeLlLlon of pasL lnefflclency
W romoLes operaLlonal efflclency
W More approprlaLe for sLaff and supporL areas
W Pelpful ln analysls and declslon maklng
W Pelpful ln opLlmum uLlllzaLlon of resources
efects
W ncreases paper work
W CosL of preparlng packages
W 8anklng of dlfferenL packages ls sub[ecLlve
W 8eslsLance by managers
W uoesn'L conslder quallLaLlve aspecLs
W More emphasls on shorL Lerm ob[ecLlves
Advantages of udgetary Contro|
W ncreases Lfflclency
W ALLalnmenL of company's ob[ecLlve
W CpLlmum uLlllzaLlon of resources
W ManagemenL by excepLlon
W Pelpful ln revlewlng currenL Lrend
W Measures efflclency of dlfferenL unlLs
W AsslsL ln managerlal funcLlons
|m|tat|ons of udgetary Contro|
W mposslble Lo achleve LargeLs
W 8apldly changlng condlLlons
W ConsLralnL Lo managerlal lnlLlaLlves
W CorrelaLlon and coordlnaLlon of varlous
budgeL ls expenslve
W May lead Lo confllcL among execuLlves
W Cnly a Lool of managemenL noL a subsLlLuLe
Act|v|ty ased Cost|ng
CMA deflnes A8C as cosL aLLrlbuLlon Lo cosL
unlLs on Lhe basls of beneflL recelved from
lndlrecL acLlvlLles eg orderlng seLLlng up
Assurlng quallLy eLc
1he baslc feaLure of A8C ls Lo focus on acLlvlLles
as Lhe fundamenLal cosL ob[ecLs L uses
acLlvlLles as Lhe basls for calculaLlng Lhe cosL
of producL and servlces
teps |nvo|ved |n Act|v|ty ased Cost|ng
W ueLermlnlng Lhe demand for each lndlvldual
acLlvlLy on Lhe basls of budgeLed producLlon
W ueLermlnlng Lhe budgeLed cosL of performlng
each acLlvlLy
W AscerLalnlng Lhe acLual cosL of each acLlvlLy
W Comparlng Lhe acLual cosL wlLh budgeLed cosL
W CalculaLlon of varlance
W 8emedlal AcLlons (lf needed)
enef|ts of Imp|ement|ng AC
W CosL managemenL
W uownslzlng
W ueLermlnaLlon of roducL servlce cosLy
W mprovemenL ln erformance
W roducL/servlce prlclng
W Make or 8uy declslon
W 1ransfer rlclng
1arget Cost|ng
CMA deflnes LargeL cosL as a producL cosL esLlmaLe
derlved from a compeLlLlve markeL prlce
1argeL cosLlng ls a formal process LhaL aLLempLs Lo
maLch a proposed producL's feaLures wlLh a
vlable markeL prlce LhaL achleves Lhe company's
proflLablllLy goals
ect|ves
W uownslzlng Lhe cosL
W Maklng new producL compaLlble Lo markeL
needs
W MoLlvaLlng Lhe employees Lo aLLaln LargeL proflLs
teps |nvo|ved |n 1arget Cost|ng
W LsLabllshlng Lhe LargeL prlce
W LsLabllshlng LargeL proflL
W ueLermlnlng allowable CosL
W CalculaLlon of robable CosL of currenL
producLlon
W LsLabllshlng a cross funcLlonal Leam and uslng
Lools as value englneerlng ln deslgn process
W ursulng cosL reducLlon Lechnlques
Advantages of 1arget Cost|ng
W nduces for lnnovaLlons
W 8educes CosL
W ncreases sprlL of Leamwork
W uevelopmenL of rlghL producL
W Lnhances Lhe probablllLy of markeL success
W Allgns Lhe cosL of feaLures wlLh cusLomer's
wllllngness Lo pay for Lhem
espons||||ty Account|ng
Accordlng Lo Porngren
8esponslblllLy accounLlng ls a sysLem of accounLlng LhaL
recognlzes varlous declslon cenLres LhroughouL an
organlzaLlon and Lraces cosLs Lo Lhe lndlvldual
managers who are prlmarlly responslble for declslon
maklng
Accordlng Lo kohler
8esponslblllLy accounLlng ls a meLhod of accounLlng ln
whlch cosLs are ldenLlfled wlLh persons asslgned Lo
Lhelr conLrol raLher Lhan wlLh producLs or funcLlons
1ypes f espons||||ty centres
W CosL or Lxpense CenLre
W 8evenue CenLre
W roflL CenLre
W ConLrlbuLlon CenLre
W nvesLmenL CenLre
Advantages of espons||||ty Account|ng
W LsLabllshes a sound sysLem of conLrol
W Compare acLual performance wlLh budgeLed
W laclllLaLe delegaLlon of auLhorlLy
W Pelpful ln managemenL by excepLlon
W laclllLaLe prompL reporLlng
W ncreases lnLeresL and awareness among
supervlsory sLaff