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Lecture - Cost Acc - Part-1.ppt - Revised 10062019
Lecture - Cost Acc - Part-1.ppt - Revised 10062019
Accounting
◼ Financial Accounting
◼ Cost Accounting
◼ Management Accounting
Financial Accounting..
◼ Financial accounting is the field of
accounting concerned with the
summarizing, analyzing and reporting of
financial transactions pertaining to a
business.
Process Costing:
In Process costing cost are accumulated by
production, process or by department.
This method is used when all units
manufactured within a department or cost
centre essentially homogeneous.
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The following conditions may exist:
Finished Cloths
goods processing
Methods
◼ Other methods:
➢ Contract Costing
➢ Batch Costing
➢ Operating or service Costing
➢ Multiple Costing
Contract Costing:
◼ Under this method costing is done for big
jobs which involves heavy expenditure and
stretches over a long period and often it is
undertaken at different sites. Each contract is
treated as a separate unit for costing. This is
also known as Terminal Costing.
Construction of bridges, roads, buildings, etc.
comes under contract costing.
Batch Costing
◼ This methods of costing is used where the
units produced in a batch are uniform in
nature and design. For the purpose of
costing each batch is treated as a job or
separate unit.
◼ Industries like Bakery, Pharmaceuticals
etc. usually use batch costing method.
Operating Costing or Service
Costing:
◼ This method of costing is used to ascertain
the cost of particular service such as nursing
home, Bus, railway or chartered bus etc.
Each particular service is treated as separate
units in operating costing.
◼ In the case of a Nursing Home, a unit is
treated as the cost of a bed per day per
patient and for buses operating cost for a
kilometer is treated as a unit.
Multiple Costing:
◼ Application of more than one method of
costing in respect of the same product.
Used in industries where a number of
components are separately manufactured
and then assembled into a final product
Cost accounting techniques
◼ Different types of costing techniques are
used in different industries to analyze and
presenting costs for the purposes of control
and managerial decisions.
➢ Standard costing
➢ Historical costing
➢ Marginal Costing
➢ Absorption costing
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◼ Historical costing:
Historical costing is the ascertainment and
recording of actual costs when, or after, they
have been incurred and was one of the first
stages in the growth of the Cost Accountant's
work. Actual costs refer to material cost, labour
cost and overhead cost.
◼ In this technique of cost accounting, costs are
determined only after they have been incurred.
◼ Almost all organizations use historical costing
system.
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Standard Costing:
◼ When costs are determined in advance on
certain predetermined standards under a
given set of operating conditions, it is
called standard costing.
◼ Standard Costing compares the standard
cost of each product or service with actual
cost to determine the efficiency of the
operation, so that any remedial action may
be taken immediately.
Techniques
◼ Marginal Costing
Also referred to as variable costing, charges
products only those manufacturing cost that vary
directly with volume.
(B) Labor
(C)Expenses
Elements of Cost
Factory / Selling
Administration & Distribution
Works
Overheads Overheads
Overheads
Material Cost
The cost of commodities and materials used
by the organization.
Direct Expenses –
Expenses identified by individual cost
centers or directly incurred for a particular
job other than material and labor.
i.e. Hire charges of machinery/equipment
for particular job, cost of defective work etc.
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Indirect Expenses –
Expenses which cannot be identified by
individual cost centers.
Rent , Telephone expenses, Insurance,
Lightening etc.
Direct Material Cost
+
Direct Labour Cost Prime Cost
+
Direct Expenses Cost
Material Expense
Material Expense
Labor
Labor
Classification by Function
Manufacturing Administration
Cost Cost
1.Fixed cost
2. Variable Cost
3. Mixed Cost
Fixed Cost:
Variable Total variable cost changes Variable cost per unit remains
as activity level changes. the same over wide ranges
of activity.
Fixed Total fixed cost remains Average fixed cost per unit goes
the same even when the down as activity level goes up.
activity level changes.
Total Variable and Fixed Costs
Fixed costs
The Slope is the
variable cost per
unit
Number of units
Mixed Cost
◼ Mixed Costs contain both fixed and
variable elements. They are partly affected
by fluctuation in the level of activity.
Sale