Bhagwan Mahavir College of Commerce and Management Studies

Course : F.Y. B.B.A. Sem 1

Subject : Financial Accounting
Chapter : Elements of Costing – Unit 5
Prepared By : Ms. Nikita Keshan

1
 PRESENTED BY – Ms. Nikita Keshan
CONTENTS OF UNIT 5 :-
5.1 Concept and Meaning of Cost Accounting (CA) :

5.2 Advantages and Limitations of Cost Accounting :

5.2.1. Advantages of Cost Accounting :

(A) Advantages to Management
i) Facilitates comparison
ii) Measures economic performance
iii) Fixation of prices
iv) Aids in decision making
v) Helps in minimising wastages and losses
vi) Assists in increasing profitability
vii) It guides future production policy
(B) Advantages to Employees
i) Earn better wages
ii) Job security
iii) Merit rating techniques
(C) Advantages to Creditors
i) Increases confidence
ii) To know solvency position BMCCMS
(D) Advantages to the Government PRESENTED BY – Ms. Nikita Keshan
i) Helps in formulating policies
ii) Helps in assessing tax
iii) Helps in prepare national plans
(E) Advantages to Society
i) Pay less price for goods and services
ii) Offers Job opportunities

5.2.2. Limitations of Cost Accounting :

i) It is expensive
ii) The system is more complex
iii) Not suitable for small scale units
iv) It lacks social accounting
v) Lack of Uniformity
vi) Does not include all items of expense and income
vii) Involves many forms and documents
viii) Conventions

5.3 Concepts of Costs, Preparation of Cost Sheet :

5.3.1. Concepts of Costs
5.3.2. Preparation of Cost Sheet

5.4 Stock Register [FIFO, LIFO and Weighted Average (WA)] : BMCCMS
5.1 Concept and Meaning of Cost Accounting :-

Cost Accounting is a
system of accounting

Which helps in
determining cost of
production of goods or
services

With reasonable accuracy

PRESENTED BY – Ms. Nikita Keshan BMCCMS

 • Cost Accounting is a process of collecting, recording, classifying, analyzing,
summarizing, allocating and evaluating various alternative course of action and
control of costs.

• Its goal is to advise the management on the most appropriate course of action
based on the cost efficiency and capability.

• Cost Accounting provides the detailed cost information that management

needs to control current operations and plans for the future.

• According to CIMA (Chartered Institute of Management Accountants), Cost

Accounting is defined as a system put in place by the management to generate
the amount incurred in the production of goods and services so as to determine
the cost of production and profit generated in the organization.

• For example, It is not sufficient to know that the cost of one pen is Rs. 25/- but
the management is also interested to know the cost of material used, the
amount of labour and other expenses incurred so as to control and reduce its
cost. It establishes budgets and standard costs and actual cost of operations,
processes, departments or products and the analysis of variances, profitability
and social use of funds. Thus Cost Accounting is a quantitative method.BMCCMS
PRESENTED BY – Ms. Nikita Keshan
 BMCCMS PRESENTED BY – Ms. Nikita Keshan
• i) Increases confidence
Creditors
• ii) To know solvency position (C) Advantages to
• i) Earn better wages Employees
• ii) Job security (B) Advantages to
• iii) Merit rating techniques
• i) Facilitates comparison
• ii) Measures economic performance
• iii) Fixation of prices
Management
• iv) Aids in decision making
• v) Helps in minimising wastages and losses
(A) Advantages to
• vi) Assists in increasing profitability
• vii) It guides future production policy
5.2 Advantages and Disadvantages of Cost Accounting :-
 Continue…..

(D) Advantages to • i) Helps in formulating policies

• ii) Helps in assessing tax
the Government • iii) Helps in prepare national plans

(E) Advantages to • i) Pay less price for goods and services

Society • ii) Offers Job opportunities

PRESENTED BY – Ms. Nikita Keshan BMCCMS

 5.2.1. Advantages of Cost Accounting :-

A) Advantages to Management :

i) Facilitates comparison :- It facilitates cost comparison in respect of jobs,

process, and departments, also between two periods. This reveals the
efficiency or otherwise of each job process or department.

ii) Measures economic performance :- By applying cost control techniques such

as budgetary control and standard costing it helps in assisting the
performance of business.

iii) Fixation of price :- By providing cost data it helps management to fix the
selling price in advance. Hence, quotations/tenders can be supplied to
prospective customers to secure orders.

PRESENTED BY – Ms. Nikita Keshan BMCCMS

 Continue….

iv) Aids in decision-making :- It helps management in making suitable decisions

such as make or buys, replace manual labour by machines, shut down or
continue operations based on cost reports.

v) Helps in minimising wastages and losses :- Cost accounting system enables

to locate the losses relating to materials, idle time and under utilisation of
plant and machinery.

vi) Assists in increasing profitability :- Costing reports provide information

about profitable or unprofitable areas of operation. The management can
discontinue that product line or that department which are responsible for
incurring losses. Thereby only profitable lines of activities alone are retained.

vii) It guides future production policy :- Cost data help management in

determining future production policy. Any expansion or contraction of
production for the future is based on past cost data.

PRESENTED BY – Ms. Nikita Keshan BMCCMS

Continue….

B) Advantages to Employees :

i) Earn better wages :- Cost accounting system enables employees to earn better
wages through overtime wages and incentive systems of wage payment.

ii) Job Security :- By providing better facilities it ensures job security to

employees.

iii) Merit Rating techniques :- Employees benefit by merit rating techniques which
is conducted by scientific process.

C) Advantages to Creditors :

i) Increases confidence :- It increases the confidence of creditors in the capital

employed in the business.

ii) To know solvency position :- The frequent preparation of reports and

statements help in knowing solvency position of the business.
PRESENTED BY – Ms. Nikita Keshan BMCCMS
Continue…. PRESENTED BY – Ms. Nikita Keshan

D) Advantages to the Government :

i) Helps in formulating policies :- It helps government in formulating policies

regarding export, import, taxation, price control measures, wage fixation, etc.

ii) Helps in assessing tax :- It helps in assessing excise duty, sales tax and income tax of
the business.

iii) Helps to prepare national plans :- Costing information helps in preparing national
plans.

E) Advantages to Society :

iv) Pay less price for goods and services :- Cost reduction and cost control programmes
go to minimise cost of production of goods and services. A portion of the reduced
cost of production is shared by customers by paying less price for goods and
services.

v) Offers job opportunities :- It offers employment opportunities in the cost

accounting department in the capacity of cost accountants and cost clerks. BMCCMS
 PRESENTED BY – Ms. Nikita Keshan
5.2.2. Limitations of Cost Accounting :

i) It is expensive

ii) The system is more complex

iii) Not suitable for small scale units

iv) It lacks social accounting

v) Lack of Uniformity

vi) Does not include all items of expense and income

vii) Involves many forms and documents

viii) Conventions

BMCCMS
i) It is expensive :- The system of cost accounting involves additional
expenditure to be incurred in installing and maintaining it.

ii) The system is more complex :- As the cost accounting system involves
number of steps in ascertaining cost such as collection and classification of
expenses, allocation and apportionment of expenses, it is considered to be
complicated system of accounts. Moreover the system makes use of several
documents and forms in preparing the reports. This will tend to delay in the
preparation of accounts.

iii) Not suitable for small scale units :- A cost accounting system is applicable
only to a large-sized business but not to a small-sized one.

iv) It lacks Social Accounting :- Cost accounting fails to take into account the
social obligation of the business. In other words, social accounting is outside
the purview of cost accounts.

PRESENTED BY – Ms. Nikita Keshan BMCCMS

Continue….

v) Lack of Uniformity :- Due to a lack of formal structure cost accounting methods

can differ widely from business to business so that it is not comparable from
business to business. Businesses in the same industry may have markedly different
treatments of the same cost accounting information. The absence of a uniform
standard is the primary limitation of cost accounting.

vi) Does not include all items of expense and income :- Items of purely financial
nature such as interest, financial charges, discount and losses on an issue of
shares and debentures, etc., are not taken into consideration in Cost Accounting.

vii) Involves many forms and statements :- It involves usage of many forms and
statements which leads to increase of paperwork.

viii) Conventions :- Several conventions are routinely applied or used in costing

which may not be appropriate in all situations. For example, classifying overheads
into variable and fixed, recovery of overheads on machine hour or labour hour
basis etc.
PRESENTED BY – Ms. Nikita Keshan BMCCMS
5.3 Concepts of costs, Preparation of Cost Sheet :-

5.3.1. Concepts of Costs :-

PRESENTED BY – Ms. Nikita Keshan BMCCMS

 a) Cost

b) Cost Driver

c) Cost Unit

d) Cost Centre

e) Expense

f) Loss

g) Conversion Cost

h) Contribution

PRESENTED BY – Ms. Nikita Keshan BMCCMS

 a) Cost :- In ordinary meaning, cost means, the total amount of expenditure
incurred in producing goods or services. Technically it is the amount of
resources given up in exchange for some goods or services.
• When the value of these resources are expressed in monetary terms, it is
called "Cost."
• The Institute of Certified Management Accountants has defined Cost as
"the amount of expenditure (actual or notional) incurred on, or attributed
to, a specified thing or activity." .
• Cost is a general term and to know exactly what type of cost it is, it is
necessary to qualify it by some adjective e.g. Factory Cost, Cost of Sales,
Total Cost etc.

b) Cost Driver :- A cost driver is a unit that derives the expenses and sets a
basis on which a particular cost is to be allocated between the different
departments.
• For Example, Labor hours, Materials used, degree of automation, Number
of machine setups, number of units produced, number of orders received,
and overhead costs.

PRESENTED BY – Ms. Nikita Keshan BMCCMS

c) Cost Unit :- Cost unit, also known as the cost per unit, the cost of goods
sold or the cost of sales, is the amount of money that a company invests in
manufacturing a single unit of a saleable product.
•The former Institute of Cost and Works Accountants of England (now CIMA)
had defined 'Cost Unit' as a unit of quantity of product. service or time, in
relation to which costs may be ascertained or expressed. Thus, cost unit is a
device by which total cost is broken into smaller sub- divisions.

PRESENTED BY – Ms. Nikita Keshan BMCCMS

 d) Cost Centre :- For ascertaining cost of production, the business enterprises
divided into different units and cost is determined with reference to each such
unit. Each of such units or sub-divisions is known as Cost Centre.
• Suppose, a business unit is divided into three departments and cost of each
department is separately ascertained, then department is the cost centre. It is a
location with reference to which cost is determined. Similarly, costs may be
ascertained, say, with regard to a group of operators. Here, a group of workers
is a cost centre.

Cost Centres

Functional
Basic Classification Classification Other

Personal Impersonal Production Service Operational Process

Cost Centre Cost Centre Cost Centre Cost Centre Cost Centre Cost Centre

PRESENTED BY – Ms. Nikita Keshan BMCCMS

e) Expense :- Expired cost is known as an expense. Expenses are costs which
are applied against revenue of a particular accounting period.
E.g. Salaries, Rent which are paid or become payable are expenses and so they
are called "Expired Costs."

f) Loss :- The excess of expenses over related revenues is known as loss.

Similarly, if some fixed asset is sold and the value realised is less than its book
value, then the difference is treated as a loss.
E.g., Cash or goods lost by theft or a fire accident, Loss on sale of assets, etc.

PRESENTED BY – Ms. Nikita Keshan BMCCMS

 PRESENTED BY – Ms. Nikita Keshan

g) Conversion cost :- Conversion Cost is the total of all cost incurred on labour,
direct expenses and factory overheads for converting raw materials into finished
goods.
• Conversion cost does not include cost of raw materials, because they are
purchased from outside.

h) Contribution :- The excess

of selling price over variable or
marginal cost is called
"Contribution." e.g. if the
selling price of a unit is Rs. 100
and if the variable cost
incurred for producing it is Rs.
60, then the contribution is Rs.
40. BMCCMS
 PRESENTED BY – Ms. Nikita Keshan
5.3.2. Preparation of Cost Sheet :-
A Cost Sheet is a statement that summarizes the costs incurred by a company
during a specific period. It includes both direct costs (such as raw material and
labour) and indirect costs (such as overheads / expenses). To prepare a cost sheet,
the company needs to gather information about all costs related to production.
These costs are then summarized and presented in the cost sheet.

To prepare Cost Sheet :

STEP 1 : Prime Cost = Direct Materials Consumed + Direct Labour / Wages +
Direct Expenses
Direct Material Consumed = Direct Material Purchased + Opening Stock of
Raw Material – Closing Stock of Raw Material

STEP 2 : Works Costs = Prime Cost + Factory / Indirect Expenses + Opening Stock
Work in Progress – Closing Stock Work in Progress

STEP 3 : Cost of Production = Works Costs + Office and Administration Expenses +

Opening Stock of Finished Goods – Closing Stock Finished Goods

STEP 4 : TOTAL COSTS = Cost of Production + Selling and Distribution Expenses

PROFIT = Sales – Total Costs BMCCMS
 PRESENTED BY – Ms. Nikita Keshan

Following items are to be ignored in the cost sheet:

(a) Advance tax paid
(b) Cash discount allowed on sales
(c) Dividend paid
(d) Dividend received
(e) Debenture interest
(f) Donation paid
(g) Interest received
(h) Interest paid on loan
(i) Income tax paid
(j) Interest paid on bank overdraft
(k) Income tax refund
(l) Interest on capital
(m) Bad debts
(n) Loss on sale of machinery
(o) Purchase of computer for office
(p) Purchase delivery van
(q) Profit on sale of investment
(r) Sale of machinery

BMCCMS
 PRESENTED BY – Ms. Nikita Keshan

PROFIT TABLE :-

% ON COST PRICE % ON SALE PRICE

100% (1/1) 50% (1/2)

50% (1/2) 33 1/3% (1/3)

33 1/3% (1/3) 25% (1/4)

25% (1/4) 20% (1/5)

20% (1/5) 16 2/3% (1/6)

11.11% (1/9) 10% (1/10)

BMCCMS
PRESENTED BY – Ms. Nikita Keshan

BMCCMS
BMCCMS

PRESENTED BY – Ms. Nikita Keshan

PRESENTED BY – Ms. Nikita Keshan BMCCMS
 BMCCMS
PRESENTED BY – Ms. Nikita Keshan
PRESENTED BY – Ms. Nikita Keshan

BMCCMS
PRESENTED BY – Ms. Nikita Keshan

BMCCMS
PRESENTED BY – Ms. Nikita Keshan
BMCCMS
EX - The accounts of Z Ltd for the year ended 31st December, 2010, shows the following:
Work Office Salaries = Rs. 6,500 BMCCMS
Administrative Office Salaries = Rs. 12,600
Cash Discounts allowed = Rs. 2,900
Carriage Outward = Rs. 4,300
Carriage Inward = Rs. 7,150
Bad debts written off = Rs. 6,500
Repairs to Plant and Machinery = Rs. 4,450
Rent, rates, taxes, Insurance etc - Factory = Rs. 8,500, Office = Rs. 2,000
Sales = Rs. 4,61,000
Stock of Raw materials: 1stJanuary,2010 = Rs. 48,000, 31stDecember,2010 =Rs. 62,800
Materials Purchased = Rs. 1,85,000
Travelling Expenses = Rs. 2,100
Traveller’s Salaries and Commission = Rs. 7,700
Productive Wages = Rs. 1,26,000
Depreciation on Plant and Machinery = Rs. 6,500
Depreciation on Office Furniture = Rs. 300
Director’s Fees = Rs. 6,000
Gas and Water (Factory) = Rs. 1,200
Gas and Water (Office) = Rs. 400
Manager’s Salary (1/4 Office and 3/4 Factory) = Rs. 10,000
General Expenses = Rs. 3,400 PRESENTED BY – Ms. Nikita Keshan
You are required to prepare a cost statement for the year ended 31st December, 2010.
 Cost Statement of Z Ltd. for the year ended 31st December, 2010 BMCCMS

Particulars Amount Amount

Raw Materials Consumed:
Stock of Raw Materials as on 1st Jan., 2010 48,000
Add: Materials Purchased 1,85,000
Add: Carnage Inward 7,150
Less: Stock of Raw Materials as on 31st Dec., 2010 62,800
1,77,350
Add: Productive Wages 1,26,000
PRIME COST 3,03,350
Add: Works/Factory Overheads:
Work Office Salaries 6,500
Repairs to Plant and Machinery 4,450
Rent, Rates, Taxes, Insurance etc. – Factory 8,500
Depreciation on Plant and Machinery 6,500
Gas and Water (Factory) 1,200
Manager’s Salary (3/4) 7,500
Works or Factory Overheads 34,650

PRESENTED BY – Ms. Nikita Keshan

 PARTCULARS A MOUNT AMOUNT
WORKS/FACTORY COST 34,38,000
Add: Office and Administration Overheads:
Administrative Office Salaries 12,600
Rent, Rates, Taxes, Insurance etc. – Office 2,000
Depreciation on Office Furniture 300
Director’s Fees 6,000
Gas and Water (Office) 400
Manager’s Salary (1/4) 2,500
General Expenses 3,400
Office and Administration Overheads 27,200
COST OF PRODUCTION/COST OF GOODS SOLD 3,65,200
Add: Selling and Distribution Overheads:
Carriage Outward 4,300
Travelling Expenses 2,100
Traveller’s Salaries and Commission 7,700
Selling and Distribution Overheads 14,100

BMCCMS TOTAL COST OF SALES PRESENTED BY – Ms. Nikita Keshan

3,79,300
EX - The following information has been extracted from the books of ABC & Co. for the month ending January 31, 2019:

ITEMS AMOUNT
Raw Material (as on January 01, 2019) 54000

Work-in-Progress (as on January 01, 2019) 27500

Finished Goods (as on January 01, 2019) 61500

Raw Material (as on January 31, 2019) 48500

Work-in-Progress (as on January 31, 2019) 24750

Finished Goods (as on January 31, 2019) 66750

Material Purchased 280000

Carriage Inward for Raw Material 2150

Material destroyed by fire 6650

Productive Wages 175000

Wages of Storekeeper 7500

Depreciation on Machinery 8200

PRESENTED BY – Ms. Nikita Keshan BMCCMS

 Factory Rent 14000

Electricity Bill of Factory 6700

Renovation of Factory Premises 9300

Machinery Repairs and Maintenance 2500

Office Cleaning 900

Depreciation on Office Computers 3500

Office Telephone Bill 650

Office Manager's Salary 11000

Office Stationery 1700

Fuel in Office Car 2750

Legal Charges 850

Salesperson Salary 7750

Warehouse Rent 4500

Freight Outwards 550

Depreciation of Delivery Van 2350

Showroom Rent and Taxes 8500

Advertisement 5000

PRESENTED BY – Ms. Nikita Keshan BMCCMS

 Prepare a cost sheet from the above data, showing:

•Prime cost
•Works cost
•Cost of production
•Total Cost
•Profit or loss, if the sales amounted to Rs. 661800.
 Note that : 13,236 units were manufactured in January 2019.

PRESENTED BY – Ms. Nikita Keshan BMCCMS

PRESENTED BY – Ms. Nikita Keshan

BMCCMS
 EX- You are preparing a cost sheet for an automobile company for the
year 2020-21. You have to consider the following information to
prepare a cost sheet:
Direct material consumed – INR 30,00,000
Opening stock of raw materials – INR 18,00,000
Closing stock of raw materials – INR 2,00,000
Direct wages – INR 20,00,000
Direct expenses – INR 10,00,000
Factory overhead – 100% of direct wages
Office and administration overhead – 20% of works
Selling and distribution overhead – INR 10,00,000
Cost of opening stock for finished goods – INR 2,50,000
Cost of closing stock for finished goods – INR 3,50,000
Profit on cost – 20%

PRESENTED BY – Ms. Nikita Keshan BMCCMS

PRESENTED BY – Ms. Nikita Keshan BMCCMS
EX- The following information has been obtained from the records of ABC Corporation
for the period from June 1 to June 30, 2018.

PARTICULARS On June 1, 2018 On June 30, 2018

Cost of raw materials 60,000 50,000
Cost of work-in-process 12,000 15,000
Cost of stock of finished goods 90,000 1,10,000
Purchase of raw materials during June’ 2018 4,80,000
Wages paid 2,40,000
Factory overheads 1,00,000
Administration overheads (related to production) 50,000
Selling & distribution overheads 25,000
Sales 10,00,000

PREPARE a statement giving the following information: (a) Raw materials consumed; (b)
Prime cost; (c) Factory cost; (d) Cost of goods sold; and (e) Net profit
BMCCMS
PARTICULARS AMOUNT
PRESENTED BY – Ms. Nikita Keshan
Opening stock of raw materials 60,000
Add: Purchase of raw materials during June’ 2018 4,80,000
Less: Closing stock of raw materials (50,000)
(a) Raw materials consumed 4,90,000
Add: Direct wages 2,40,000
(b) Prime cost 7,30,000
Add: Factory overheads 1,00,000
Works cost 8,30,000
Add: Opening work-in-process 12,000
Less: Closing work-in-process (15,000)
(c) Factory cost 8,27,000
Add: Administration overheads 50,000
Cost of production 8,77,000
Add: Opening stock of finished goods 90,000
Less: Closing stock of finished goods (1,10,000)
(d) Cost of goods sold 8,57,000
Add: Selling & distribution overheads 25,000
Cost of sales 8,82,000

PRESENTED BY – Ms. Nikita Keshan BMCCMS

EX- Swadeshi Electronics Ltd. furnishes you the following information for the year ended
31st March, 2012 :

Production and Sales = 15,000 Units PRESENTED BY – Ms. Nikita Keshan

Sales = Rs. 12,75,000
Direct Wages = Rs. 2,70,000
Direct Materials = Rs. 3,30,000
Factory Overheads = Rs. 2,25,000
Administrative Overheads = Rs. 1,05,000
Sales Overheads = Rs. 90,000
On account of intense competition following changes are estimated in the subsequent
year:
(a) Production and sales activity will be increased by one third.
(b) Material rate will be lower by 25%. However, there will be increase in consumption by
20% due to quality difference.
(c) Direct wages cost would be reduced by 20% due to automation.
(d) Out of the above factory overheads, Rs. 45,000 are of fixed nature. The remaining
factory expenses are variable in proportion to the number of units produced.
(e) Total administrative overheads will be lower by 40%.
(f) Sales overheads per unit would remain the same.
(g) Sale price per unit would be lower by 20%.
Prepare a statement of cost for both the years ending 31st March, 2012 and 31st March,
2013 showing maximum possible details of cost. BMCCMS
 Cost Sheet of Swadeshi Electronics Ltd. for the year ended 31st March, 2012
PARTICULARS (OUTPUT = 15,000 Units) TOTAL COST PER UNIT
Direct Materials 3,30,000 22
Direct Wages 2,70,000 18
Prime Cost 6,00,000 40
Add: Works/Factory Overheads:
Fixed Overheads 45,000 3
Variable Overheads 1,80,000 12
Factory Overheads 2,25,000 15
Works/Factory Cost 8,25,000 55
Add: Office and Administration Overheads:
Administrative Overheads 1,05,000 7
Cost of Production/Cost of Goods Sold 9,30,000 62
Add: Selling and Distribution Overheads
Sales Overheads 90,000 6
Total Cost of Sales 10,20,000 BMCCMS
68
Add: Profit 2,55,000 17
Sales Value 12,75,000 85

PRESENTED BY – Ms. Nikita Keshan

 Estimated Cost Sheet of Swadeshi Electronics Ltd. for the year ended 31st March, 2012
PARTICULARS (OUTPUT = 20,000 Units) TOTAL COST PER UNIT
Direct Materials 3,96,000 19.80
Direct Wages 2,16,000 10.80
Prime Cost 6,12,000 30.60
Add: Works/Factory Overheads:
Fixed Overheads 45,000 22.50
Variable Overheads 2,40,000 12.00
Factory Overheads 2,85,000 14.25
Works/Factory Cost 8,97,000 44.85
Add: Office and Administration Overheads:
Administrative Overheads 63,000 3.15
Cost of Production/Cost of Goods Sold 9,60,000 48.00
Add: Selling and Distribution Overheads
BMCCMS
Sales Overheads 1,20,000 6.00
Total Cost of Sales 10,80,000 54.00
Add: Profit 2,80,000 14.00
PRESENTED BY – Ms. Nikita Keshan Sales Value 13,60,000 68.00
5.4 Stock Register [FIFO, LIFO and Weighted Average (WA)] :

FIFO METHOD :-

•First In, First Out (FIFO) is an accounting method in which assets purchased or acquired
first are disposed of first.
•FIFO assumes that the remaining inventory consists of items purchased last.
•The FIFO method follows the logic that to avoid obsolescence, a company would sell
the oldest inventory items first and maintain the newest items in inventory.
Advantages :
•Easier to understand and implement.
•Follows the natural flow of inventory.
•Reflects the current value of inventory better than LIFO method.
LIFO METHOD :-

•The LIFO method assumes that the most recent products added to a company's
inventory have been sold first.
•The LIFO method is used in the COGS (Cost of Goods Sold) calculation when the costs
of producing a product or acquiring inventory has been increasing.
•This may be due to inflation.
Weighted Average Cost Method :-

•The weighted average method is one of the most common methods of inventory and
cost accounting.
•It is also known as Average Cost Method.
•The weighted average method, which is mainly utilized to assign the average cost of
production to a given product.
•The weighted average cost method divides the cost of goods available for sale by the
number of units available for sale.
•The average cost of materials purchased is charged to the job or process rather than
the actual cost.
•Weighted average costing is commonly used in the following situations:
The accounting system is not sufficiently sophisticated to track FIFO or LIFO inventory
layers; or
Inventory items are so commoditized (i.e., identical to each other) that there is no
way to assign a cost to an individual unit.
PRESENTED BY – Ms. Nikita Keshan

BMCCMS
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BMCCMS
 BMCCMS
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BMCCMS
 BMCCMS
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 BMCCMS
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 BMCCMS
PRESENTED BY – Ms. Nikita Keshan