Introduction to Cost accounting

By: Puneet Kumar Asst. Prof. NIET, NBS

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Objective
The main objective of this presentation is to

illustrate the introduction to the cost accounting

Puneet Kumar (NBS, Gr. Noida)

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Contents
Introduction

Meaning of cost accounting

Elements of cost Cost sheet Classification of cost Basic Terms Methods of Costing Types of Costing

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COST - MEANING
Cost means the amount of expenditure ( actual or notional) incurred on, or attributable to, a given thing.

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COST ACCOUNTING MEANING

Cost accounting is concerned with recording, classifying and summarizing costs for determination of costs of products or services, planning, controlling and reducing such costs and furnishing of information to management for decision making

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ELEMENTS OF
COST

COST

MATERIALS

OTHER EXPENSES

LABOUR

DIRECT

INDIRECT DIRECT

INDIRECT

DIRECT

INDIRECT

OVERHEADS
DOH
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FOH
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AOH

SOH

MATERIAL: The substance from which the finished product is made is known as material.

Direct material is one which can be directly or easily identified in the product Eg: Timber in furniture, Cloth in dress, etc.
Indirect material is one which cannot be easily identified in the product.
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Examples of Indirect material

At factory level lubricants, oil, consumables, etc. At office level Printing & stationery, Brooms, Dusters, etc. At selling & dist. level Packing materials, printing & stationery, etc.

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LABOUR: The human effort required to convert the materials into finished product is called labour.

DIRECT LABOUR is one which can be conveniently identified or attributed wholly to a particular job, product or process. Eg:wages paid to carpenter, fees paid to tailor,etc.
INDIRECT LABOUR is one which cannot be conveniently identified or attributed wholly to a particular job, product or process.
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Examples of Indirect labour

At factory level foremens salary, works managers salary, gate keepers salary,etc At office level Accountants salary, GMs salary, Managers salary, etc. At selling and dist.level salesmen salaries, Logistics manager salary, etc.
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OTHER EXPENSES are those expenses other than materials and labour. DIRECT EXPENSES are those expenses which can be directly allocated to particular job, process or product. Eg : Excise duty, royalty, special hire charges,etc. INDIRECT EXPENSES are those expenses which cannot be directly allocated to particular job, process or product.
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Examples of other expenses

At factory level factory rent, factory insurance, lighting, etc. At office level office rent, office insurance, office lighting, etc. At sales & dist.level advertising, show room expenses like rent, insurance, etc.

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COST SHEET
DIRECT MATERIAL DIRECT LABOUR DIRECT EXPENSES

PRIME COST FACTORY OVERHEADS

FACTORY COST OFFICE OVERHEADS

COST OF PRODUCTION SELL & DIST OVERHEADS

COST OF SALES PROFIT

SALES

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COST SHEET - ADVANCED

OPENING STOCK OF RAW MATERIALS +PURCHASES +CARRIAGE INWARDS -CLOSING STOCK OF RAW MATERIALS VALUE OF MATERIALS CONSUMED +DIRECT WAGES +DIRECT EXPENSES PRIME COST +FACTORY OVERHEADS +OPENING STOCK OF WIP -CLOSING STOCK OF WIP +ADMINISTRATIVE OVERHEADS FACTORY COST (CONT.)

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+OPENING STOCK OF FINISHED GOODS -CLOSING STOCK OF FINISHED GOODS COST OF PRODUCTION +SELL. & DIST. OVERHEADS COST OF GOODS SOLD +PROFIT COST OF SALES

SALES

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COST CLASSIFICATION ON THE BASIS OF

Nature Function Direct & indirect Variability Controllability Normality Financial accounting classification Time Planning and control Managerial decision making
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ON THE BASIS OF NATURE

MATERIALS LABOUR EXPENSES

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ON THE BASIS OF FUNCTION

MANUFACTURING COSTS COMMERCIAL COSTS ADM AND S&D COSTS

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ON THE BASIS OF DIRECT AND INDIRECT

DIRECT COSTS INDIRECT COSTS

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ON THE BASIS OF VARIABILITY

FIXED COSTS VARIABLE COSTS SEMI VARIABLE COSTS

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ON THE BASIS OF CONTROLLABILITY

CONTROLLABLE COSTS UNCONTROLLABLE COSTS

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ON THE BASIS OF NORMALITY

NORMAL COSTS ABNORMAL COSTS

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ON THE BASIS OF FIN. ACC

CAPITAL COSTS REVENUE COSTS DEFERRED REVENUE COSTS

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ON THE BASIS OF TIME

HISTORICAL COSTS PRE DETERMINED COSTS

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ON THE BASIS OF PLANNING AND CONTROL

BUDGETED COSTS
STANDARD COSTS

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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

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TERMS IN COST ACCOUNTING

COST UNIT COST CENTRE

COST ESTIMATION
COST ASCERTAINMENT COST ALLOCATION

COST APPORTIONMENT
COST REDUCTION COST CONTROL

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METHODS OF COSTING
JOB COSTING CONTRACT COSTING BATCH COSTING PROCESS COSTING UNIT COSTING OPERATING COSTING OPERATION COSTING MULTIPLE COSTING

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TYPES OF COSTING
UNIFORM COSTING

MARGINAL COSTING
STANDARD COSTING HISTORICAL COSTING

DIRECT COSTING
ABSORBTION COSTING

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Summary
This presentation talked about the basic concepts

of the cost accounting, the elements, cost sheet, classification, the terms of the costing, the methods of costing

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References
Cost & management accounting MN Arora

Cost & management accounting SK

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Bhattacharya Cost & management accounting Duncan Williamson Cost accounting DK Mittal Cost accounting Nigam Jain Cost accounting Luv Mittal Cost accounting Foster Cost accounting Hornoren Cost accounting MN Arora Puneet Kumar (NBS, Gr. Noida)

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