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@ · Identifies unprofitable activities.
· Improves efficiency / Facilitates cost control.
· Helps in planning & preparation of budgets.
· Helps in inventory control.
· Facilitates decision making.
· Helps in achieving the main objective of the
organization

ë
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@ · Provides management adequate, timely and reliable
information.
· Helps management in managing and controlling costs.
· Provides cost-
cost-benefit approach for resource allocation.
· Helps in decision making:
- Pricing
- Product-
Product-mix
- Profit-
Profit-volume decisions
· Helps in making special studies and investigations.
@ . Assists and participates in the formulation and execution of
budgets and standards.

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· Who are our most important customers ?
· How sensitive are their purchases to prices, quality,
and service ?
· Who are our most important suppliers ?
· What substitute products exist in the market place,
and how do they differ from our product in term of
price and quality ?
· Is the industry demand growing or shrinking ?
· Is their over capacity ?
 
Interface of Financial Accounting with Cost Accounting

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·
Interface of Financial
3   

Accounting with Cost Accounting


  

            
          

                   


               
  

    
  


                  


  
          
  
               

  
  
    
 
 
 


               



  
   
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@ ^ifferent cost concepts and terms are


often used in accounting reports.
@ Managers who understand these
concepts and terms are able to...
² best use the information provided, and

² avoid misuse of that information.

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@ |  is a resource sacrificed or forgone


to achieve a specific objective.
@ It is usually measured as the monetary
amount that must be paid to acquire
goods and services.
@ ? 
 is the cost incurred (a
is
historical cost) as distinguished from
budgeted costs.
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@ ?  
? is anything for which a
is
separate measurement of costs is
desired.
@ Product
@ Service
@ Project
@ Brand
@ Activity
@ ^epartment 
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@ ^irect costs of a cost object are those
that are related to a given cost object
(product, department, etc.) and that
can be traced to it in an
economically feasible way.
G  describes the assignment of
@ | 
direct costs to the particular cost
object.
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I^C are related to the particular cost


object but cannot be traced to it
in an economically feasible way.

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@ Several factors affect the classification of a


cost as direct or indirect:
² The materiality of the cost in question
² Available information-
information-gathering technology
² ^esign of operations
² Contractual arrangements
@ The direct/indirect classification depends
on the choice of the cost object.
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 ! !' 
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@ Separate Cost
@ which can be traced to each
particular unit of batch of
production
@ Common Cost
@ whichare common for 2 or more
products / product lines which can
be produced separately ëw
 ! !' 
 !!| ! !

@ Aoint Cost
@ which are incurred in producing products
which must necessarily be produced
together
@ By--Product Cost
By
@ isvariation of Aoint Cost
@ BP & AP cost depends upon significance
and importance
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@ Historical Cost
@ is on past figures
@ Replacement Cost
@ is present replacement value
@ Standard Cost or Budgeted
@ is based on standards ëá
 ! !' 
- !
| ! !

@ Manufacturing Cost
@ istotal of consumption of raw materials,
direct labour and manufacturing
overheads
@ Selling & ^istribution Cost
@ is cost incurred to sell & distribute
@ Administrative Cost
@ is incurred in office administration
ÿ
 !!  
' | ! !

@ Total Cost
@ sum total of all costs
@ Unit Cost
@ isTotal Cost divided by number of
units produced
² Hours worked
² Packages delivered
² No. of units assembled ÿë
 !!  

 ! | ! !

@ Prime Cost
@ total of Cost of RM consumed & ^irect
Labour
@ Here Cost of RM consumed = Op. Stock RM
+ Purchases RM ² Closing Stock RM
@ Conversion Cost
@ total of ^irect Labour and Manufacturing OH
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@ Fixed Cost
@ which do not vary with cost object/no. of
units produced
@ Variable Cost
@ which varies with no. of units produced
@ Semi-Fixed
Semi-
@ Semi
Semi--Variable

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@ Marginal Cost
@ is cost of producing one more unit
@ Sunk Cost
@ iscost which cannot be recovered
even if the course of action is not
made
@ Period Cost
@ is for a particular period ÿ·
Statement of Cost or Cost Sheet

@ Total cost is made up of cost of production and cost of


distribution.. Total cost is also called as selling cost, which
distribution
consists of:
of:
@ Prime cost

@ Factory cost or work cost

@ Administration cost or Office Overheads

@ Selling and ^istribution Cost.


Cost.

ÿü
Proforma of Cost Sheet

@ Cost sheet is a statement designed to show the output of a


particular accounting period along with break up of costs
costs..

@ According to CIMA, London, the cost sheet is ¶a statement


which provides for the assembly of the detailed cost of a cost
center or a cost unit .

ÿ]
Cost sheet of ---- for the year ended ----
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@A cost driver is a factor, such as the
level of activity or volume, that
causally affects costs (over a given
time span).
@ The cost driver of variable costs is
the level of activity or volume
whose change causes the
(variable) costs to change
proportionately. ÿá