Professional Documents
Culture Documents
Yogesh Dhoke
Assistant Professor
Department of Management
COST ACCOUNTING
(ACCT – 232)
No of Contact
Contents
Weeks hours
Activity Based Costing: Simple v/s Activity based costing system, cost
3 9
hierarchy, cost products or services using activity based costing, ABC v/s ABM
Process Costing: Process Costing methods, job order costing and spoilage,
4 12
job costing & rework and accounting for scrap.
Total 14 42
UNIT - 1
2. Cost terminology
4. Model Paper
5. Quiz
6. Home Assignment
COST ACCOUNTING
INTRODUCTION
COST ACCOUNTING - MEANING
Ascertainment of costs
Estimation of costs
Cost control
Cost reduction
COST ACCOUNTING: The application of cost control methods and the ascertainment of the
profitability of activities carried out or planned”.
COST CONTROL: Cost control means the control of costs by management. Following are the aspects or
stages of cost control.
JOB COSTING: It helps in finding out the cost of production of every order and thus helps in ascertaining
profit or loss made out on its execution. The management can judge the profitability of each job and decide its
future courses of action.
BATCH COSTING: Batch costing production is done in batches and each batch consists of a number of
units, the determination of optimum quantity to constitute an economical batch is all the more important .
ELEMENTS OF COST
Element of cost
PRIME COST
FACTORY OVERHEADS
FACTORY COST
OFFICE OVERHEADS
COST OF PRODUCTION
SELL & DIST OVERHEADS
COST OF SALES
PROFIT
SALES
COST SHEET - ADVANCED
PRIME COST
+FACTORY OVERHEADS
+OPENING STOCK OF WIP
-CLOSING STOCK OF WIP
FACTORY COST
(CONT.)
FACTORY COST
+ADMINISTRATIVE OVERHEADS
COST OF PRODUCTION
+OPENING STOCK OF FINISHED GOODS
-CLOSING STOCK OF FINISHED GOODS
COST OF SALES
+PROFIT
SALES
COST CLASSIFICATION – ON THE BASIS OF
Nature
Function
Direct & indirect
Variability
Controllability
Normality
Financial accounting classification
Time
Planning and control
Managerial decision making
ON THE BASIS OF NATURE
Materials
Labour
Expenses
ON THE BASIS OF FUNCTION
Manufacturing costs
Commercial costs – ADM and S&D Costs
Indirect costs
ON THE BASIS OF VARIABILITY
Fixed costs
Variable costs
Uncontrollable costs
Abnormal costs
ON THE BASIS OF FINANCIAL ACCOUNTS:
Capital costs
Revenue costs
Standard costs
ON THE BASIS OF MANAGERIAL DECISION
MAKING
Marginal costs
Out of pocket costs
Sunk costs
Imputed costs
Opportunity costs
Replacement costs
Avoidable costs
Unavoidable costs
Relevant and irrelevant costs
Differential costs
TERMS IN COST ACCOUNTING
Cost unit
Cost centre
Cost estimation
Cost ascertainment
Cost allocation
Cost apportionment
Cost reduction
Cost control
METHODS OF COSTING
Job costing
Contract costing
Batch costing
Process costing
Unit costing
Operating costing
Operation costing
Multiple costing
TYPES OF COSTING
Uniform costing
Marginal costing
Standard costing
Historical costing
Direct costing
Absorption costing
Calculation of various cost
Direct Materials
Opening stock of materials
Add Purchases of materials
Less Closing stock of materials
(a) Materials consumed
Direct Wages
Direct Expenses ------ ------
PRIME COST
Add Factory Overheads
Factory rent, rates, taxes Fuel-power and water Lighting and Heating Indirect wages Depreciation, Repairs
Salaries of Works Manager etc. Indirect Materials
Drawing office and works office expenses Depreciation on factory land and building Less Scrap value
Defective work
Add Work in progress (opening)
Less Work in progress (closing) ------
WORKS COST
Add Office/Administration overheads
Office rent, insurance, lighting, cleaning
Office salaries, telephone, law and audit expenses
Accounting?
3 Elston's Metal Shop uses a job order cost system. It applies overhead to jobs at a rate of 150% of direct labor
costs. Job No.2617 required $500bin direct labor costs. The job was initially budgeted to require $550 in
direct labor costs. Overhead applied to No.2617 during the period amounted to :
A) $550 (B) $750 (C) $825 (D) some other amount .
4 If the manufacturing overhead account at month end has a remaining debit balance, this indicates that overhead
is under applied .
A) True (B) False
5 A predetermined overhead application rate :
A) Is used in a job order cost system but cannot be used in a process cost system
(B) Can be determined by dividing budgeted direct labor cost by the budgeted factory overhead costs.
(C) Is not generally accepted for financial reporting purpose.
(D) Tends to avoid wide variation in per-unit overhead cost because of short -run changes in volume .