Cost Accounting

Presented by: Ayesha Javed

Process Costing
Job Costing system

In Job costing system the units for which the cost is

calculated are customized and identifiable such as
furniture, houses etc.

Process costing system

In process costing system the units for which the
cost is calculated are identical and similar such as
food, cement and chemical processing.
Sections of Process-Costing
1. Quantity Schedule
2. Cost charged to the department
3. Cost accounted for
4. Calculation of Equivalent units produced
5. Computation of per unit cost
 Equivalent Units
 Equivalent units can be defined as the number of
units that could have produced given the total
amount of manufacturing effort expended for the
period under consideration.
Equivalent Units = units completed and
transferred + units still in process X percentage
completed
Material Costing and
Accounting
Costing for material
Costing for material includes the study of different
methods for computation of cost of receipts and
issues of materials and costing for returns.

Inventory systems
 Periodic Inventory System
 Perpetual Inventory System
Accounting for Materials
Commodities which are used in the production of
finished product are called materials. It includes all
raw materials and supplies like lubricants, fuel and
loose tools.

Types of material
 Direct material
 Indirect Material
Accounting for material
1. Initiating purchase process
2. Placing purchase order
3. Receiving materials
4. Returning defective materials
5. Issuing material
6. Return of unused material
Methods of Material Costing
 First In First Out (FIFO) Method
 Advantages
 Disadvantages
 Last In First Out (LIFO) Method
 Advantages
 Disadvantages
 Average Costing Method
Economic Order Quantity
Economic order quantity (EOQ) is the ideal order
quantity a company should purchase to
minimize inventory costs.
Formula=
Two cost to be considered:
1. Inventory carrying cost
2. Inventory ordering cost
 Cost Allocation: Joint
Products and By-Products
Joint cost
 company inevitably produce two or more
products simultaneously.
Cost of Single production process

Results in multiple products simultaneously

For example:
Coconut
water
Coconut Coconut
oil cream

Coconu
t
Joint Production process categories

 Joint products
 By products

Splitoff point
A split-off point is the point of production at which
joint products appear in the production process. 
Approaches to allocation of cost

Approach 1 Approach 2

Market Physical
based data measure
Factory overhead costing
and control
Cost behavior analysis
 Fixed Cost
 Variable Cost
 Semi-Variable Cost

Factory Overhead
 Indirect Material
 Indirect Labor
 Other Indirect manufacturing costs
Distribution of Overhead

 Classification of overhead
 On the Basis of Function
 On the Basis of Cost Behavior
 On the Basis of Cost element
 Collection of Overheads
 Allocation of production overhead 
 Apportionment of production overhead
Cont…
 Re-apportionment of service overheads
 Secondary Apportionment Methods
 Non Reciprocal Apportionment
 Reciprocal Apportionment
• Repeated Apportionment method
• Algebric Method
Cont…
 Absorption of Overhead
 Methods
Percentage of Direct Labor Cost
Factory Overhead Rate = Amount of Production Overheads/
Direct Labor Cost x 100

Direct Labor Hours

Factory Overhead Rate = Amount of Production Overheads/
Direct Labor Hours

Machine Hours Rate

Factory Overhead Rate = Amount of Production Overheads/
Machine Hours
Cont…
Percentage of Direct Material Cost
Factory Overhead Rate = Amount of Production
Overheads/ Direct Cost Material x 100

Percentage of Prime Cost

Factory Overhead Rate = Amount of Production
Overheads/ Prime Cost x 100

 Rate Per Unit Of Production

Factory Overhead Rate = Amount of Production
Overheads/ No. of Units of Production
Labor Costing and Control
Introduction
Labor represents cost of services of human
resources-the most valuable asset of an
organization. Effective utilization of all the
resources of an organization depends on the quality
of its manpower.

Classification of labor
 Direct Labor
 Indirect Labor
Elements of Labor Cost
 Direct or indirect labor cost
 Basic Components:
 Basic wage
 Overtime Premium
 Idle Time
 Labor Turnover
 Methods of Wage Payment

Time Wage Rate System

Time Wage Rate

Piece Wage Rate System System

Piece Wage Rate

Incentive Wage rate System
system Incentive Wage
rate system
Cont.…
 Time Wage Rate System
Total Earnings = Hours worked X Rate Per Hour
 Piece Wage Rate System
Total Earnings = No. of Units X Rate per unit
 Incentive Wage rate System
 Halsey premium plan
 Halsey Weir Plan
 Rowan premium plan
Cont.…
 Halsey Premium plan
Total Earnings = (hours worked X Rate Per Hour) + 50%
(time saved X Rate Per hour)
 Halsey Weir Plan
Total Earnings = (hours worked X Rate Per Hour) + 30%
(time saved X Rate Per hour)
 Rowan premium plan
Total Earning = Hours worked X Rate per hour) + {(time
saved/Time allowed) X (Hour Worked X Rate per hour)}
The End