Accounting and

costing for
Managers

Submitted To Dr. Harendra Kumar

Submitted By - Faisal Numan (MFM II)

Q.1 Amount attributes in bringing out any output or service is termed as

cost. (T/F)
An: True

Q.2 Deciding the sale price is one of the objectives of the cost. (T/F)
An: True

Q.3 Budget Centre can be personal and impersonal both. (T/F)

An: True

Q.4 Master Budget is prepared mandatorily, for every organization. (T/F)

An: True

Q.5 what do you mean by marginal cost?

An. Marginal cost is the cost of one additional unit of output. The concept is
used to determine the optimum production quantity for a company, where it
costs the least amount to produce additional units. If a company operates
within this "sweet spot," it can maximize its profits. The concept is also used
to determine product pricing when customers request the lowest possible
price for certain orders.
For example, a production line currently creates 10,000 widgets at a cost of
Rs30, 000, so that the average cost per unit is Rs.3.00. However, if the
production line creates 10,001 units, the total cost is Rs30, 002, so that the
marginal cost of the one additional unit is only Rs 2. This is a common effect,
because there is rarely any additional overhead cost associated with a single
unit of output, resulting in a lower marginal cost.
In rare cases, step costs may take effect, so that the marginal cost is actually
much higher than the average cost. To use the same example, what if the
company must start up a new production line on a second shift in order to
create unit number 10,001? If so, the marginal cost of this additional unit
might be vastly higher than Rs 2 - it may be thousands of rupees, because
the company had to start up an extra production line in order to create that
single unit.
A more common situation lying between the preceding two alternatives is
when a production facility operating near capacity simply pays overtime to
its employees for them to work somewhat longer to put out that one
additional unit. If so, the marginal cost will increase to include the cost of
overtime, but not to the extent caused by a step cost.

The marginal cost of customized goods tends to be quite high, whereas it is

very low for highly standardized products that are manufactured in bulk. The
reason for the difference is that the variable cost associated with a
customized product tends to be higher than for a standardized product. A
high level of standardization is usually achieved with more automation, so
the variable cost per unit is low and the fixed cost of manufacturing
equipment is high.
Since marginal cost is only used for management decision making, there is
no accounting entry for it.

Q 6 Describes the constituents of the budget committee.

An. A group of people that creates and maintains fiscal responsibility for an
entity or organization. In a company, this committee usually consists of the
top management and the CFO. Budget committees typically review and
approve departmental budgets that are submitted by the various department
heads. Budget committees play key roles in the success or demise of a
company or other corporate entity. Committees that are able to keep their
organizational budgets on track ensure smooth operation and financial
solvency; those that cannot will soon encounter financial problems.

Q. 7 what are the various elements of costs?

An: There are three elements of cost:
- Material Cost: This is the cost of material or the commodity used by the
organization for its production purpose. Material is the substance, from which
a product is made. Thus, it may be in a raw or a manufactured state. It can
be direct or indirect.
- Direct Material Cost forms an integral part of the finished product and is
identified with the individual cost center. It is also described as process
material, stores material, production material, etc. Example: Raw materials
purchased or purchased primary packing material, etc.
- Indirect Material Cost is used for ancillary purposes of the business and
cannot be conveniently identified with the individual cost center. Example:
Consumable stores, oil and waste, printing and stationery material etc.
- Labour Cost: This is the cost, incurred in the form of remuneration paid to
the employees or labours of the organization. The workforce required to
convert material into finished product is called labour. It can be direct or
indirect.
- Direct Labour Cost is the cost incurred on those employees who directly
take part in the manufacturing process and easily identified with the
individual cost Centre.

- Indirect Labour Cost is the cost incurred on those employees who do not
directly take part in the manufacturing process and cannot identified with the
individual cost Centre. Example: salary of foreman, salesmen, directors
salary, etc.
- Expenses: are the costs of services provided to the organization. It can be
direct or indirect.
- Direct Expenses are the expenses which can be directly identified with the
individual cost centers. Example: hire charges of machinery, cost of defective
work for a particular job or contract etc.
- Indirect Expenses are the expenses which cannot be directly identified with
the individual cost centers. Example: rent, lighting, telephone expenses, etc.