CA Inter – Cost and Management Accounting Concept Points for Quick Revision

Chapter 1: Basic Cost Concepts

Concept 1: Meaning of Cost, Costing and Cost Accounting
 Cost refers to expenditure incurred in producing a product or in rendering a service.
 Cost is expressed from Manufacturer’s viewpoint, (i.e. not that of consumer/ end user).
 Cost ascertainment is based on uniform principles and techniques.
 Costing: The technique & process of ascertaining costs.
 Cost Accounting: Process of accounting for cost, beginning with recording of Income and Expenditure, and ending
with preparation of statements and reports for ascertaining and controlling costs.

Concept 2: Cost Classification

Based on Classification
1. Time Period (a) Historical Cost, (b) Current Cost, and (c) Budgeted or Standard or Pre–determined Cost
2. Nature (a) Variable Cost, (b) Fixed Cost, (c) Semi Variable Cost
3. Elements (a) Material, (b) Labour, (c) Expenses
(a) Direct (b) Indirect
Cost directly relatable to Cost Unit or Cost Cost not directly relatable or traceable to Cost
4. Relationship Centre. Unit or Cost Centre.
Direct Costs = Direct Material + Direct Labour. All Other Costs are considered as Indirect Costs.
Total Direct Costs is called Prime Cost. Total Indirect Costs is called Overheads or Oncost.
(a) Controllable Costs, and (b) Non-Controllable Costs
5. Controllability
Note: Controllability is subject to – (i) Time, (ii) Place, and (iii) Product
6. Expectation (a) Normal Cost, (b) Abnormal Cost
7. Attributability (a) Product Costs, and (b) Period Costs
8. Payment (a) Explicit Costs, and (b) Implicit Costs
9. Usefulness for (a) Relevant Cost, and (b) Irrelevant Cost
Decision mkg
10. Cause and (a) Engineered Costs, and (b) Discretionary Costs
Effect Relship
(a) Pre-Production Costs, (d) Selling Costs, (g) Development Costs, and
11. Functions (b) Production Costs, (e) Distribution Costs, (h) Conversion Costs
(c) Administration Costs, (f) Research Costs,

Chapter 2: Material Cost

Concept 1: Techniques of Material Cost Control
1. Purchase Procedure 6. ABC Analysis
2. Documentation 7. Economic Order Quantity (EOQ)
3. Stores Location and Layout 8. Stock Taking Procedures
4. Setting up of Stock Levels 9. A/cing for Material Wastage & Landed Cost
5. Ratio Analysis 10. Pricing of Material Issues
Concept 2: Ratio Analysis in Materials

Processing Related Usage Related

Output Quantity Cost of Raw Material Consumed
1.Yield Ratio = 1.Raw Material Turnover Ratio = [or]
Input Quantity Average Stock of Raw Materials
Input Quantity Quantity of Raw Material Consumed
2.Input–Output Ratio =
Output Quantity Average Stock Quantity of Raw Materials
365
2.Number of days Raw Material held =
Raw Materials T/O Ratio
Purpose: To identify fast-moving and slow-moving materials

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CA Inter – Cost and Management Accounting Concept Points for Quick Revision

Concept 3: Setting up of Stock Levels

Maximum Level Level Formula
1. Maximum Usage Rate × Maximum Lead Time [or]
Re–Order Level
2. Safety Stock + Lead Time Consumption

Re–Order Level – (minus) (Average Usage Rate × Average

Minimum Level
Lead Time)

Re–Order Level + Re–Order Quantity – (minus) [Minimum

Maximum Level
Re–Order Level (ROL) Usage Rate × Min. Lead Time]

Maximum Level Minimum Level

1. [or]
2
Average Level 2. Minimum Level + ½ of Re–Order Qtty [or]
Minimum Level
Opening Stock Clo sin g Stock
3.
2
Danger Level 1. Minimum Usage Rate × Minimum Lead Time [or]
Danger Level 2. Average Usage Rate × Minimum Lead Time [or]
Zero Level 3. Minimum Usage Rate × Average Lead Time

Note: Computation is based on 2 Factors – 1. Usage Rate, and 2. Lead Time

These two Factors are expressed in 3 estimates – 1. Maximum, 2. Average, 3. Minimum

Concept 4: ABC Analysis

1. ABC Analysis is as under –
Category % in Total Value
A 70%
B 20%
C 10%
% in Total Quantity Extent of Control
Constant and Strict Control through Budgets, Ratios,
10%
Stock Levels, EOQ, Procedural checks, etc.
Need based selective control – periodic review – not
20%
strict or excessive.
70% Little control – focus on saving associated costs.

2. Method of Stock Control wherein RM Items are divided into 3 categories for having different degrees of control, based
of the investment (value).
3. Also called HML (High Moderate Low) Analysis, (or) 70–20–10 Analysis, (or) Pareto Analysis, (or) Selective Stock Control.

Concept 5: Economic Order Quantity (EOQ)

1. EOQ is the purchase quantity, that minimises the total of all cost relating to purchases p.a., viz. the following items –
(a) Purchase Costs, i.e. Price paid to Supplier, net of Trade Discounts, if any
(b) Buying Costs (or Ordering Costs), i.e. Cost relating to every Purchase Order, e.g. Advertisement, Sample
Testing, Stationery, Postage, etc.
(c) Carrying Costs (or Stockholding Costs), i.e. Cost of carrying every unit of RM in Inventory, e.g. Interest on
Working Capital blocked in Inventory, Storage Costs, Risk of Obsolescence, Pilferage, etc.

2. Computation: By applying Wilson’s formula –

2 AB A = Annual Requirement of Raw Materials (in units).
EOQ = , where
C B = Buying Cost per order.
C = Carrying Cost per unit of Raw Materials per annum.
Assumptions:

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CA Inter – Cost and Management Accounting Concept Points for Quick Revision

Concept 6: Accounting of Material Landed Cost and Material Wastage

1. Landed Cost of Materials includes the following items –
(a) Price paid to Supplier, net of Trade Discounts if any
(b) Duties and Taxes, (e.g. GST, Customs, etc.) net of Credit availed, if any
(c) Cost of Containers, net of credit allowed for return of empty containers
(d) Carriage Inwards (or Freight, Transportation, etc.)
(e) Transit Insurance
(f) Unloading Charges
(g) Stores Overhead, as per Company Policy
(h) Adjustment in respect of Normal Loss of Materials

2. Reduction / Difference in Material Quantity, i.e. Shortage = Material Losses

Normal Loss Abnormal Loss

i.e. Expected, Unavoidable, Non–Controllable i.e. Beyond Expectations, Above Normal

Treated as Regular Cost Treated as Loss

(a) As Direct Materials by inflating Issue Price [or] Charged off/Written Off, i.e. Debited to
(b) As Production Overheads Costing Profit and Loss A/c.

Concept 7: Pricing of Material Issues

Cost Price Methods Average Price Methods Market Price Methods Notional Price Methods
 Specific Price
 Simple Average Price  Standard Price
 First–In–First–Out (FIFO)  Replacement Price
 Weighted Average Price  Inflated Price
 Last–in–First–out (LIFO)  Realisable Price
 Re–use Price
 Base Stock

Chapter 3: Employee Cost

Concept 1: Techniques of Labour Cost Control
1. Manpower Planning 4. Over Time Analysis 7. Job Evaluation and Merit Rating
2. Time Keeping and Time Booking 5. Labour Turnover Analysis 8. Wages and Incentive Systems
3. Idle Time Analysis 6. Productivity or Efficiency Ratio

Concept 2: Idle Time Analysis

Idle Time = Unproductive Time, i.e. time during which worker is not engaged in production, but paid for.
Idle Time = Total Time (as per Time Keeping Records) Less Productive Time (as per Time Booking Records).
Accounting for Idle Time Cost

Normal Idle Time Abnormal Idle Time

i.e. Expected, Unavoidable, Non–Controllable i.e. Beyond Expectations, Above Normal

Treated as Regular Cost Treated as Loss

(a) as Direct Wages by inflating Wage Rate (for Direct Workers) [or] Charged off/Written Off, i.e. Debited to
(b) as Production Overheads (for Indirect Workers) Costing Profit and Loss A/c.

Concept 3: Overtime Analysis

1. Meaning: Working beyond normal working hours is called Overtime Work.
2. Eligibility: As per Factories Act, a Worker is eligible for OT Pay, if he works for more than 9 hours in a day, or, more
than 48 hours in a week.
3. Negative Effects of OT Work: (a) Increased Pay, and (b) Reduced Rate of Efficiency / Output.

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4. Steps to control OT: (a) Proper Supervision, (b) Sanction for OT work, (c) Efficiency Comparison, (d) Periodical
Reporting, (e) Revised / Flexible Standards for job performance, (f) Restriction on Overtime Pay.
5. Accounting for OT Premium:

Normal Reasons Abnormal Reasons

[e.g. (a) Genuine Labour Shortage, (b) Reqments of valuable customer] [e.g. Power Failure, M/c outage, etc.]

Treated as Regular Cost Treated as Loss

(a) as Direct Wages by inflating Wage Rate (for Direct Workers) [or] Charged off/Written Off, i.e. Debited to
(b) as Production Overheads (for Indirect Workers) Costing Profit and Loss A/c.

Concept 4: Labour Turnover Rates

1. Meaning: Rate of Change in Labour Force of a Firm, during a certain period, measured against a suitable index.
[Number of workers at the beginning + Number of workers at the end]
2. Index = L = Average Labour Force =
2
3. Nature: The lower the Labour Turnover, the better it is for the Firm. It should be comparable with Industry Average.
4. Terms used in Labour Turnover:
Term Separation (S) Replacement (R) New Recruitment (N)
i.e. Number of workers left and discharged (or) New Joinings
Old Worker Goes out Goes out –
New Worker – Comes in Comes in
Accessions (A) = Number of Workers recruited and joined = Replacements + New Joinings / New Recruitments, (or)
= Number of Workers at the end + Number of Separations (–) Number of Workers at the beginning.

5. Computation of Labour Turnover Rates

Labour Turnover Without Expansion Labour Turnover With Expansion
S S
1. Separation Method: = 1. Separation Method: =
L L
R A R N
2. Replacement Method: = 2. Accession Method: = =
L L L
SR SA SR N
3. Mixed Method: = 3. Flux Method: = =
L L L
Note: Expansion refers to an increase in production facilities by which new joinings are involved & new workers are
recruited, e.g. diversification, plant capacity increase, commencement of new factory, introduction of additional shift, etc.

Concept 5: Productivity or Efficiency Ratio

(a) Based on Time: (b) Based on Output:
Standard Time allowed for Actual Output Actual Output produced
Efficiency = Efficiency =
Actual Time taken Standard Output for Actual Time worked

Concept 6: Computation of Wages under different Wages and Incentive Schemes

System Formula for Wages
Simple Time Rate Total Wages = Actual Hours Worked × Rate per hour.
Simple Piece Rate Total Wages = Actual Units produced × Rate per piece.
Total Wages = Actual Units produced × Rate per piece, where Rate per piece is as under –
Taylor’s Differential
Efficiency less than 100% 83% of Normal Piece Rate
Piece Rate
Efficiency equal to or more than 100% 125% of Normal Piece Rate
Total Wages = Basic + Bonus, and is calculated as under –
System Basic Component Bonus Component
Premium Bonus
Halsey Hrs Worked × Rate p.h. 50% × Time Saved × Rate per hour
Systems
Actual Hours
Rowan Hrs Worked × Rate p.h. × Time Saved × Rate per hour
S tan dard Hours

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CA Inter – Cost and Management Accounting Concept Points for Quick Revision

Chapter 4: Overheads and Absorption Costing System

Concept 1: Steps in Absorption Costing System
1. Collection: This involves accumulation of data relating to Overheads based on past information and adjusted for
known current trends and projected into the future.
2. Classification: Overheads are classified according to nature, viz. Fixed, Variable and Semi–Variable expenses. They
are also identified under various heads of account, e.g. Factory Rent, Supervision, Repairs and Maintenance, etc.
3. Allocation: This means identifying the Specific OH of a Cost Centre, directly in full to that Cost Centre.
4. Apportionment: It is the distribution of Common OH to more than one Cost Centre, on appropriate basis.
5. Re–apportionment: This involves re–distribution of Service Department Expenses to Production Departments, based
on three different assumptions as to inter–relationship between Service Departments. [Note]
6. Recovery/ Absorption: It is the charging of Estimated OH to Products or Services, using Absorption Rates for each
Cost Centre.
Note: Assumptions and Methods in Re–apportionment
Assumption Method
Service Departments do not serve one another. Direct Distribution Method.
One Service Department serves the other, but Step Ladder Method, or Step Method, or
does not take back services in return. Non–Reciprocal Services Method.
Reciprocal Services Method –
Service Departments serve one another.  Repeated Redistribution Technique (or Trial & Error Technique), (or)
 Simultaneous Equations Technique.

Concept 2: Capacity Concepts

Maximum Capacity 1. Licenced Capacity is the production capacity of the Plant for which license has
been issued by an appropriate authority / Government Agency.
Practical Capacity 2. Installed Capacity is the maximum productive capacity according to the
Manufacturers’ specification of Machines / Equipment.
3. Practical Capacity = Maximum Capacity (–) Normal / Unavoidable Time Loss.
Normal Capacity
4. Normal Capacity is the capacity of a Plant, which is expected to be utilised
Actual Capacity over a long period based on sales expectations. Normal Capacity = Practical
Capacity (–) Loss of productive capacity due to external factors.
5. Actual Capacity Utilization is the volume of production achieved, or actual
operating hours worked, in relation to installed capacity.
6. Abnormal Idle Capacity = Practical (or sometimes Normal) Capacity minus
Zero Capacity Actual Capacity Utilisation.

Concept 3: Various Methods of OH Absorption

Direct Method Indirect Methods (Based on factors other than Output of Product)
(Based on Output) Method OH Recovery Rate = Applicability
1. Percentage of Total Overheads Material–cost–related items e.g. Material
OH Recovery Rate =
Direct Matls Direct Material Cost Handling, Stores OH, Indirect Materials, etc.
2. Percentage of Total Overheads When conversion process is labour–intensive
Total Overheads
Direct Labour Direct Labour Cost and wage rates are not substantially uniform.
Units of Pr oduction
3. Percentage of Total Overheads
Rarely used method.
Prime Cost Pr ime Cost
Applicable when single 4. Labour Hour Total Overheads When conversion process is labour–intensive
product is produced or Rate Direct Labour Hours and wage rates are substantially uniform.
various products are Total Overheads
5. Machine Hour
similar in specification. When conversion process is capital–intensive
Rate (Note) Machine Hours

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CA Inter – Cost and Management Accounting Concept Points for Quick Revision

Note: Machine Hour Rate Concepts

If Total OH include Machine Hour Rate is called
Machine–related Direct Costs only Direct Machine Hour Rate
Machine–related Direct and Indirect Costs Simple Machine Hour Rate
All Machine–related Costs + Operators’ Wages Comprehensive Machine Hour Rate
Examples of Direct m/c related OH:
Examples of Indirect m/c related OH:

Concept 4: Difference in Absorption = OH Variance = Absorbed OH Less Actual OH

Absorbed OH is greater than Actual OH Absorbed OH is less than Actual OH

OVERABSORPTION UNDERABSORPTION
(represents Savings in OH Expenditure) (represents Increase in OH Expenditure)

Accounting Treatment (any one of the following) Analysed as due to –

1. Write Off: Credit to Costing P & L A/c. Normal Reasons Abnormal Reasons
2. Deferral: Carried over to next period, by
transfer to OH Reserve or Suspense A/c. Treated as increase in COSTS
3. Cost Reversal: In case of large amounts, (using Supplementary OH Treated as LOSS and debited to
cost of jobs may be reduced / adjusted by Recovery Rate), and Costing P & L Account.
passing reversal journal entries. apportioned to production, i.e.–

Units Sold Closing Stock of FG Closing Stock of WIP

Debited to Cost of Sales A/c FG Control A/c WIP Control A/c

Chapter 5: Activity Based Costing

Concept 1: Cost Measurement / Ascertainment
Cost + Profit = Revenue

Direct Cost Indirect Cost….= Overheads

Ascertained at actual (from Source Docs) estimated using

Direct Material Direct Labour Absorption Costing Activity Based Costing

(Stores Reqn, BOM for Quantity) (Time/Job Cards for Hours)
(Purchase Invoice for Rate) (Wage Analysis Sheet for Rate)

Concept 2: Steps in ABC

1. Identify significant Activities in the Firm. Classify them into Primary and Secondary Activities.
2. For each Activity, determine the OH Cost incurred. This is called as Activity Cost Pool / Activity Cost Bucket.
3. For each Activity, determine the reason governing cost, i.e. why Cost is incurred. This is called Cost Driver.
4. Compute Quantity of Cost Driver.
5. Compute ABC Recovery Rate = Activity Cost Pool ÷ Quantity of Cost Driver.
6. Compute Estimated OH Cost of Cost Object = Resources Consumed X ABC Recovery Rate.

Concept 3: Traditional vs ABC

Particulars Traditional Absorption Costing Activity Based Costing
Cost related to Costs related to Places / Cost Centres. Activities and Causal Factors.
OH related to Places / Cost Centres / Departments. Activities grouped into Cost Pools.
Cost Drivers Time (Hours) is assumed as the only “causal Activity–wise Cost Drivers identified.
factor” governing cost.

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CA Inter – Cost and Management Accounting Concept Points for Quick Revision

Particulars Traditional Absorption Costing Activity Based Costing

Single & Multiple Only Single Cost Driver for each dept. Multiple Cost Drivers can be identified. Most
Cost Drivers dominant is chosen.
Recovery Rates Either multiple rates (for each department)/ single Specific activity–wise recovery rates are used.
rate (for the entire factory) may be used. There is no “single” or “overall” ABC Rate.
Cost Assignment Costs are assigned to Cost Units, i.e. to Costs are assigned to Cost Objects.
products, or jobs or hours.
Activity Only – (a) Unit Level Activities (Variable), and (b) 4 levels of activities, (a) Unit Level, (b) Batch Level,
Ascertainment Facility Level Activities (Fixed) may be identified. (c) Product Level, and (d) Facility Level, are
identified.
Cost Control Not suitable for cost control. Suitable for Cost Control.

Concept 4: Superiority of ABC over Traditional System…..

Concept 5: Limitations of ABC……

Concept 6: VA vs NVA Activities…… Activities classified into –

This is called….
This Expenditure is called…..
Firm’s objective is to –
Identification Rule…..
Necessary Unnecessary / Superfluous
Value Added Activity (VAA) Non Value Added Activity (NVAA)
COST LOSS
1. Simplify VAA and 2. Manage Costs 1. Eliminate NVAA & 2. Avoid Losses
1. Direct Costs 1. Extraneous
2. Quality in Output 2. Inefficient / 2nd time
3. Customer Requirement 3. No Value Addition

Chapter 6: Accounting for Cost

Concept 1: Summary of Accounting Methods
Method Non – Integrated System or Non – Integral Integrated System or Integral System
System or Cost Control A/cing System
Principles Cost Accounting Principles only. Cost and Financial Accounting Principles.
Items covered Income: Sales only All Incomes, Expenditure, Assets and
Expenditure: Cost Items only. Liabilities are covered.
Types of Accounts 3 Real A/cs (RM, WIP & FG) and Nominal A/cs Real, Personal and Nominal Accounts.
Separate Financial Required (Hence, Cost and Financial Books / Ledgers No separate Financial Accounting is required.
A/cs are kept separately.) (Integrated Books)
Reports Financial Accountant: TB, P&L, B/Sheet TB, P&L, B/Sheet and Cost Sheet
Cost Accountant: Costing TB, Costing P&L, Cost Sheet

Concept 2: Journal Entries……

Concept 3: Summary of Accounting Methods
Name of Account Type of balance
1. RM Control A/c (or) Stores Ledger Control A/c
2. WIP Control A/c (or) Job Ledger Control A/c
3. FG Control A/c (or) Stock Ledger Control A/c
4. POH / AOH / SOH Control A/c (or Suspense A/c)
General Ledger Adjustment A/c (or)
General Ledger Control A/c (or)
5.
Cost Ledger Control A/c (or)
Cost Ledger Adjustment A/c
Significance
Always Debit Closing Stock of Raw Materials.
Always Debit Closing Stock of Work in Progress.
Always Debit Closing Stock of Finished Goods.
Debit represents Underabsorption,
Debit or Credit
Credit represents Overabsorption.
Net effect of balances in all other accounts,
Credit
balancing figure in the Trial Balance.

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CA Inter – Cost and Management Accounting Concept Points for Quick Revision

Concept 4: Reconciliation between Profit as per Cost Records and Financial Records
1. Required under Non – Integrated System only.
2. Items causing difference between Profit as per Cost Books & Financial Books
(a) Difference in Stock Valuation Principles / Methods
(b) Difference between Absorbed and Actual OH
(c) Non–Operating Incomes, e.g. Interest, Dividend credited only in Financial Books
(d) Non–Cost Items, Non–Operating Expenditure, Income Tax, Write offs, etc. debited only in Financial Books
(e) Difference in Depreciation between Cost & Financial Books
3. Reconciliation Procedure….Memorandum Reconciliation Account
Dr. Cr.
Particulars ` Particulars `
To Loss (if any) as per Financial Books b/fd By Profit as per Financial Records b/fd
To Overheads over–absorbed in Cost Books By Overheads under–absorbed in Cost Books
– Factory / Administration / S&D Overheads – Factory / Administration / S&D Overheads
To Non–Operating Incomes e.g. Interest, By Non–operating Expenditure, Income Tax, Write
Dividend credited only in Financial Books offs, etc. debited only in Financial Books
To Opening Stocks (RM, WIP, FG) under valued in By Opening Stocks (RM, WIP, FG) over valued in
Financial Books Financial Books
To Closing Stocks (RM, WIP, FG) over valued in By Closing Stocks (RM, WIP, FG) under valued in
Financial Books Financial Books
To Profit as per Cost Records (bal. figure) By Loss (if any) as per Cost Records (bal. figure)
Total Total

Chapter 7A: Job Costing

Concept 1: Basics
1. Job: A Job refers to any specific assignment, contract or work order wherein work is executed as per customer’s
specific requirements. Ascertainment of Cost of each Job is called Job Costing.
2. Examples: Job Costing is applied in – Printing Press, Furniture, Hardware, Ship–Building, Heavy Machinery, Interior
Decoration, Repairs and other similar work.

Concept 2: Cost Measurement / Ascertainment

Job Costs are classified and ascertained as under – Job Selling Price

Total Costs + Desired Profit

Direct Costs + Indirect Costs (estimated

(ascertained at actuals) using absorption rates)

Direct Materials Direct Labour Direct Exps POH AOH SOH

From Stores From Time Cards / From As % of Direct As % of As % of Sales

Requisition / BOM, Job Cards & Wage Journals & Labour, or Lab Works Value or Works
net of Matl returns Analysis Sheets Vouchers Hour Rate Cost Cost

Chapter 7B: Batch Costing

Concept 1: Basics
1. Batch: Where the output of the job consists of homogeneous (similar) units, a lot (or) collection of similar units may be
used as a cost unit for ascertaining cost. Such lot or collection of units is called as a Batch.
2. Batch Costing: It is a form of Job Costing, wherein cost is ascertained for a collection / lot of units called a Batch.
Total Costs for the Batch
Cost per unit =
Number of items produced in the Batch
3. Examples: Batch Costing is applied in – (a) Pharmaceutical Industries, (b) TV/Computer manufacturing industries, etc.

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Concept 2: EBQ
2 AS A = Annual Demand for Finished Product (units). If Rate of Interest (I) and Unit Cost of
EBQ = , where S = Set–Up Cost per batch.
C 2 AS
C = Carrying Cost per unit of Finished Product p.a. Production (C) is given, then EBQ =
IC

Chapter 8: Contract Costing

Contract = Large job / assignment / work order, where execution of work is spread over two or more
Meaning
financial years. Commencement and completion fall in two financial years.
Contractor’s Costs

Contract related Not related to Contracts at all

Cost
Ascertain– Direct Contract Costs Indirect Contract Costs Debited to Overall P&L A/c
ment
Material Labour Expenses Apportioned to contracts using bases like
(a) Value of Contract, (b) Value of work done during the period,
(c) Time, (d) No. of workers, (e) Direct Labour Cost, (f) Number of Contracts, etc.
Income  Income on a Contract till date = Value of Work Certified + Cost of Work Uncertified.
items  Work Certified = Progress Payments + Retention Money.
Notional Profit = Income till date (Less) Expenditure till date on the contract.
Notional
Thus, Notional Profit = Value of Work Certified (–) Cost of Work Certified
Profit
= Value of Work Certified (–) [Total Cost of Work till date (–) Cost of Work Uncertified]
Estimated Total Profit / (Loss) = Contract Price (Less) Estimated Total Costs on the contract.
ETP/(ETL)
[Note: Estimated Total Costs = Cost till date + Additional Costs to be incurred.]

FORMAT OF CONTRACT ACCOUNT Contract No. ...... for the year ended .................
Particulars ` Particulars `
To Materials (Issued) By Work in Progress:
To Wages (Paid + Payable) – Value of Work Certified
To Direct Expenses – Cost of Work Uncertified
To Indirect Contract Costs By balances c/d:
To Plant (at Cost) – Materials at Site
To Costing P&L A/c – Notional Profit – bal.figure – Plant (WDV) at site
Total Total
To Work in Progress b/d
To balances b/d – Materials at Site
– Plant at Site

Chapter 9: Single Costing

Single / Output / Unit Costing is applied in situations where Standardised Product(s) is / are produced from
Concept
a single process. In other words, Output is identical, and each unit of output requires identical cost.
Unit Costing Method is applied in industries which produces single output or a few variants of a single
Examples
output. Examples: Quarries, Brickworks, Colliery, Paint Manufacturing, etc.
Costing The principles of Cost Ascertainment are the same as applicable for Job Costing as in Chapter 7.

Chapter 12: Operating Costing / Service Sector Costing

Concept Operating Costing is the method of ascertaining the costs of providing / operating / rendering a service.
1. All Costs are Service Costs, No Classification as Direct / Indirect.
Features 2. Service Costs so accumulated are classified under the following three heads –
(a) Fixed Costs or Standing Charges,

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CA Inter – Cost and Management Accounting Concept Points for Quick Revision

(b) Variable Costs or Running Charges,

(c) Semi–Variable Costs or Maintenance Costs.
Note: When information about interest is specifically given, it is treated as a Fixed Cost.
3. Deemed Cost Units are used for Cost Expression w.r.t. Services.
Absolute &  Absolute (Weighted Average) Tonne–Kms: Each Route Distance × Respective Load Quantities.
Commercial  Commercial (Simple Average) Tonne– Kms: Total Distance (i.e. Kms) × Avg Load Quantity (Tonnes)

Chapter 13: Standard Costing and Variance Analysis

Concept 1: Computation of Material Cost Variances
Particulars Col. (1): SQ × SP Col. (2): RAQ × SP Col. (3): AQ × SP Col. (4): AQ × AP
Material A
Material B
Total WN 1 WN 2 WN 3 WN 4
Differences
Material Yield Variance + Material Mix Variance + Material Price Variance
= SQ  SP – RAQ  SP = RAQ  SP – AQ  SP = AQ  SP – AQ  AP

Material Usage Variance + Material Price Variance b/fd as above

= SQ  SP – AQ  SP

Total Material Cost Variance

= Standard Material Cost – Actual Material Cost
= SQ  SP – AQ  AP

Meaning of Terms / Abbreviations used:
SQ = Standard Quantity, i.e.
= Expected consumption for actual output.
AQ = Actual Quantity of Material Consumed.
RAQ = Revised Actual Quantity, i.e. = Actual Quantity
re–written in standard proportion.
SP = Std Price per unit of material consumed.
AP = Actual Price per unit of material consumed.
Note: Material Purchase Price Variance (MPPV)
Material Price Variance is computed for the actual quantity
of materials consumed. If such Price Variance is computed
for the actual material quantity purchased, it is called as
Material Purchase Price Variance. It is computed as –
MPPV = PQ  SP – PQ  AP
Where PQ = Purchase Quantity,
SP = Standard Prices, and AP = Actual Prices.

Concept 2: Labour Cost Variances: Meaning of Terms / Abbreviations used:

SR = Standard Rate per Labour Hour. AH = Actual Hours paid for.
AR = Actual Rate paid per Labour Hour. Net AH = Total AH – Idle Time.
SH = Standard Hours, Time Allowed for actual output. RAH = Revised Actual Hours, i.e.
= i.e. Expected time for actual output. = Actual Hours re–written in standard proportion.
A. Classification based on Grade (Mix) of Labour
Particulars Col. (1): SH × SR Col. (2): RAH × SR Col. (3): AH × SR Col. (4): AH × AR
Grade A
Grade B, etc.
Total WN 1 WN 2 WN 3 WN 4
Differences
Labour Sub–Efficiency Variance + Labour Mix Variance + Labour Rate Variance
= SH  SR – RAH  SR = RAH  SR – AH  SR =AH  SR – AH  AR

Labour Efficiency Variance + Labour Rate Variance b/fd as above

= SH  SR – AH  SR

Total Labour Cost Variance

= Standard Wages – Actual Wages
= SH  SR – AH  AR

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CA Inter – Cost and Management Accounting Concept Points for Quick Revision

B. Classification based on Idle Time Analysis

SH × SR Net AH × SR Total AH × SR Total AH × AR
Particulars
Col. (1) Col. (2) Col. (3) Col. (4)
Grade A
Grade B, etc.
Total WN 1 WN 2 WN 3 WN 4
Differences

Labour Efficiency Variance + Labour Idle Time Variance + Labour Rate Variance
= SH  SR – Net AH  SR = Net AH  SR – Total AH  SR =AH  SR – AH  AR

Total Labour Cost Variance

= Standard Wages – Actual Wages = SH  SR – AH  AR

C: Classification based on both Grades of Labour and Idle Time:

SH × SR Revised Net AH × SR Net AH × SR Total AH × SR Total AH × AR
Col. (1) Col. (2) Col. (3) Col. (4) Col. (5)

Sub–Efficiency Variance Mix Variance Idle Time Variance Rate Variance

= SH  SR – RNAH  SR ` + +
= RNAH SR – NAH SR = NAH SR – AH SR = AHSR – AH AR

Efficiency Variance Idle Time Variance + Rate Variance

+
= SH  SR – NAH  SR b/fd as above b/fd as above

Labour Cost Variance

= Standard Wages – Actual Wages = SH  SR – AH  AR

Concept 3: VOH Cost Variances:

A. Based on Time (or) B. Based on Output
SH  SR AH  SR AH  AR, i.e. AVOH AO X SR SO X SR AO  AR, i.e. AVOH
Col. (1) Col. (2) Col. (3) Col. (1) Col. (2) Col. (3)

VOH Efficiency Variance + VOH Expenditure Variance VOH Efficiency Variance + VOH Expenditure Variance
= SH  SR – AH  SR = AH  SR – AH  AR = AO  SR – SO  SR = SO  SR – AO  AR

Total VOH Cost Variance = SH  SR – AH  AR Total VOH Cost Variance = AO  SR – AO  AR

Notes: 1. Underabsorption represents Adverse Variance, and Overabsorption represents Favourable Variance.
2. Either Time Based or Output Based computation can be used. Sometimes, a combination of both may also be used

Concept 4: FOH Cost Variances:

AO × SR AH × SR PFOH BFOH AFOH
Col. (1) Col. (2) Col. (3) Col. (4) Col. (5)

FOH Efficiency Variance

FOH Capacity Variance
FFFOH Calendar Variance FOH Expenditure
= AO  SR – SO  SR, + + = PFOH – BFOH + Variance
= AH SR – PH SR
i.e.= SH  SR – AH  SR = PH SR – BH SR = BFOH – AFOH

FOH Volume Variance + FOH Expenditure Variance

= AO  SR – BFOH b/fd as above

FOH Cost Variance

= Standard or Absorbed FOH– Actual FOH
= AO  SR – AFOH

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CA Inter – Cost and Management Accounting Concept Points for Quick Revision

Meaning of Terms / Abbreviations used: Conversion Factors used in computation

AO = Actual Output. Time– Output– This
BO = Budgeted Output. based based represents…..
SO = Standard Output, i.e.
= Expected Output for Actual Hours worked. Standard or
1. SH×SR ph = AO×SR pu =
Absorbed Fixed OH
PO = Possible Output, i.e.
= Expected Output for Actual Days worked.
AH = Actual Hours worked. Std Cost of Actual
2. AH×SR ph = SO×SR pu =
Net AH = Total AH – Idle Time, wherever applicable. Hours worked
BH = Budgeted Hours.
SH = Standard Hours, i.e. Budgeted Fixed
3. BH×SR ph = BO×SR pu =
= Expected Time (Time Allowed) for Actual Output. OH
PH = Possible Hrs, i.e. Expected Hrs for Actual Days worked.
AFOH = Actual Fixed Overhead. 4. PH×SR ph = PO×SR pu = Possible Fixed OH
BFOH = Budgeted Fixed Overhead.
PFOH = Possible Fixed Overhead = Expected Fixed Overhead for Actual Days worked = BFOH  AD
BD
SR = Standard Rate per Unit or per Hour, as the case may be. AD = Actual Days & BD = Budgeted Days.

Notes:
 If Days difference is not given, then Capacity Variance will be WN 2 – WN 4, i.e. AH SR – BH SR.
 Formulae for Budget Ratios
Ratio Time–Based Formula Output–Based Formula
Actual Hours (or) Actual Hours S tan dard Output (or) S tan dard Output
1. Capacity Ratio Budgeted Hours Possible Hours Budgeted Output Possible Output
S tan dard Hours Actual Output
2. Efficiency Ratio Actual Hours S tan dard Output
Actual Days (or) Possible Hours Possible Output
3. Calendar Ratio Budgeted Days Budgeted Hours Budgeted Output

4. Volume or Level S tan dard Hours Actual Output

of Activity Ratio Budgeted Hours Budgeted Output
Note: Volume or Level of Activity Ratio = Efficiency Ratio × Capacity Ratio  Calendar Ratio.

Chapter 15: Budgetary Control

1. Sales Budget – viz. Quantity, Price, Value, Mix, Targets, etc.
2. Production Budget:
Budgeted Production = Budgeted Sales (+) Closing Stock of Finished Goods (–) Opening Stock of Finished Goods
3. Material Budgets:
(a) Material Usage and RM Usage Quantity = Budgeted Production × Raw Material Usage per unit of output
Cost Budget RM Usage Cost = Budgeted RM Usage Quantity × RM Price per unit of Material
(b) Material Purchase RM Purchase Qtty=Budgeted RM Usage(+)Closing Stock of RM (–) Opening Stock of RM
and Cost Budget RM Usage Cost = Budgeted RM Purchase Quantity × RM Price per unit of Material
(c) EOQ & Stock Levels Formula as per Material Cost Chapter
4. Manpower / Labour Budgets:
(a) Budgeted DLH Usage = Budgeted Production × Direct Labour Hours required per unit of output
(b) Budgeted Labour Cost = Budgeted DLH Usage × Wage Rate per hour
Budgeted Hours Usage
(c) Budgeted No. of workers =
Hours per wor ker

5. OH Budgets: POH, AOH and SOH are estimated. Budgets may be prepared as under –
(a) Fixed Budgets Budget covering all type of OH (Fixed, Variable, Semi Variable) at a single level of activity.
Budget covering all type of OH (Fixed, Variable, Semi Variable) at various levels of activity.
 Variable Costs increase proportionately based on output levels.
(b) Flexible Budgets
 Fixed Costs remain constant at the same output, at all output levels.
 Semi–Variable Costs change as per the details available in the question.

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