Cost Allocation and Cost Apportionment

1 Cost allocation refers to the allotment of all the items of cost to cost centers or cost units. 2 IOW it is the process of charging direct expenditure to cost centers or cost units 3 The cost of labor engaged in a service department

3 Batch Costing 4 Process Costing 5 Operation Costing 6 Unit Costing (Output Costing or Single Costing) 7 Operating Costing 8 Servicing Costing 9 Multiple Costing (Composite Costing)

Cost Apportionment
1 Cost Apportionment refers to the allotment of proportions of items of cost to cost centers or cost units 2 It is the process of charging indirect expenditure to cost centers or cost units in c Canteen Expenses of the factory 3 Canteen Expenses of the factory

Features of Budget
A budget is a blueprint for management action. It is a vital tool for carrying out effective short-term planning and control in firms. Features of Budget: 1One year duration 2Estimation of Business Units Profit Potential 3Appraisal of Performance 4Monetary Terms 5Alteration of approved budget under specified conditions

Method of Costing
The principles in every method of costing are same but the methods of analyzing and presenting the costs differ with the nature of business. 1 Job Costing 2 Contract Costing

5Review and approval by higher authority 6Managerial Commitment.

Production Cost/Factory Overhead/Works Overhead or manufacturing Overhead These are the overheads which are concerned with the production function. It includes indirect materials, Indirect labor and Indirect expenses in producing goods and services. Indirect Materials: pins, screws, nuts & blots, grease, lubricating oil etc. Indirect Labour: Supervisor, Inspector, Cleaner, Clerk, Peon, Watchmen. Indirect Expense: Rent and Rates,Depreciation,Light ing and Power, Insurance,Repairs Administrative Cost/Overhead

Types of Budgets
1 Operating Budgets 2 Financial Budgets

Classification of Cost based on Function

It is the indirect expediture incurred in

general administrative function. These overhead are of general character and have no direct connection with production or sales activities. Indirect Materials: Stationery used in general administrative office, postage,, printing etc. Indirect Labour: Salary of office staff, managing director, remuneration to directors etc. Indirect Expense: Rent of office building, office lighting and power, telephone expenses, depreciation on office furniture etc. Selling and Distribution Cost/Overhead Selling overhead is the cost of promoting sales and retaining customers.

It is defined as the cost of seeking to create and stimulate demand and of securing orders Eg: Advertisements, samples and free gifts, salaries of salesmen etc. Distribution cost includes all expenditure incurred from the time the product is completed until it reaches its destination. Eg: Carriage outwards, insurance of goods in transit, upkeep of delivery vans, warehousing etc. Break Even Break Even point may be defined as a point at which the firms total revenues are exactly equal to total costs, yieding zero income. It is no-profit, no-loss point at which losses cease and profits begin. It shows the relationship between the costs and profits with sales volume.

Techniques in Product Costing

Process Costing Job Order Costing

Comparison of JobOrder Costing and Process Costing