COST AND MANAGEMENT

ACCOUNTING
BY-:
MINIHA GUPTA
MANAGEMENT FACULTY
RSD ACADEMY
(COLLEGE OF MANAGEMENT AND TECHNOLOGY)
 UNIT 1
TOPICS TO BE COVERED

 Accounting For Management

 Role of Cost in Decision Making
 Comparison b/w Cost and Management
Accounting
 Types of Cost
 Elements of Cost-: Labor, Material, Overheads
 Methods of costing
 Allocation and apportionment of cost.
 Preparation of cost Sheet
 Realization of cost and financial accounting
ACCOUTNING FOR MANAGEMENT
 Accounting is a process of identifying,
measuring and communicating
economic information for-:
 Planning
 Budgeting
 Controlling
The Functions of Management

Planning Acting Controlling

Feedback
 Role of Cost in Decision Making
 Determination of various costs help in
deciding log and short term
requirements of Firm.
 Helps managers in deciding the best
decisions fruitful for the Firm.
 Various Costs play various roles.
 Different costs solves purpose of
management.
Comparison between Cost and Management Accounting
 the main object of cost accounts  The main objective of MA is to
is to ascertain and control cost. provide useful information to
management for decision making.

 It is based on both present and  It is concerned purely with the

future transactions for cost transactions relating to future.
ascertainment.

 It has a narrow scope as it covers  It has a wide scope in as much as

matters relating to ascertainment
it covers the areas of financial
and control of cost.
accounts, cost accounts, taxation
etc.
 It serves the needs of both
internal management and
external parties.
 It serves the needs of only internal
management.

 It deals only with monetary

transactions  It deals with both monetary and
non monetary transactions.
 COST
 It is a foregoing or sacrifice, measured in
monetary terms, incurred or potentially to be
incurred to achieve a specific purpose.

Cost Elements
 Material Cost-:
 Physical Commodities
 Labor Cost-:
 Personnel
 Factory Overheads -:
 Indirect Manufacturing Costs
1. On the basis of Elements of Cost
1. Material Cost
2. Labour Cost
3. Direct Expenses
4. Overheads
2. On the basis of Function
1. Production Cost
2. Administration Cost
3. Selling Cost
4. Distribution Cost
5. Finance Cost
6. Research and Development Cost
3. On the basis of Variability
1. Variable Cost
2. Fixed Cost
3. Semi-Variable Cost
4. On the basis of Controllability
1. Controllable Cost
2. Uncontrollable Cost
5. On the basis of Normally
1. Normal Cost
2. Abnormal Cost
6. On the basis of Identify ability
1. Direct Cost
2. Indirect Cost
6. On the basis of Investment
1. Capital Cost
2. Revenue Cost
6. On the basis of Time
1. Historical Cost
2. Predetermined Cost
6. On the basis of Association with the Product
1. Product Cost
2. Period Cost
6. On the basis of Decision Making
1. Slink Cost
2. Out of Pocket Cost
3. Opportunity Cost
4. Imputed Cost
5. Marginal Cost
6. Replacement Cost
7. Avoidable and unavoidable Cost
8. Differential Cost
9. Relevant and Irrelevant Cost
10.Conversion Cost
 Types of Costing Methods
1. Absorption Costing-: Fixed and Variable
Costs
2. Marginal Costing-: An addition to the costs
is considered.
3. Historical Costing-: Consideration to Actual
cost
4. Standard Costing-: comparison between
actual and standard cost
5. Differential Costing-: adhoc information
used for evaluating the cost.
6. Uniform Costing-: costing principles and
techniques.
 METHODS OF
COSTING

SPECIFIC CONTINUOUS
ORDER OPERATION
COSTING COSTNG

Job Process
Costing Costing

Contract Operations
Costing Costing

Batch Unit
Costing Costing

Service
Costing

Joint and By Product

Costing
 Allocation of Cost
 Costs are allocated for the purpose of-:
 Valuing inventory
 Controlling costs
 Taking decisions
 Allocation Process-:
 Assignment of Direct cost
 Allocation of indirect cost
 Allocation of service department costs
 Absorption of costs by products
 Apportionment of Cost
 Planning and controlling helps in setting
benchmarks.
 It all is practiced for minimizing Cost.
 Reasonable to identify controllable and non
controllable costs for each individual.
 The most relevant costs are-:
1. Budgets and Standard Cost
2. Fixed and Variable cost
3. Differential and Marginal Cost
4. Controllable and Non Controllable cost
5. Opportunity Cost
6. Sunk Cost
7. Imputed Cost
8. Out of pocket cost
9. Replacement Cost
 “PREPARATION OF COST SHEET”
 A statement which shows the details
regarding the total cost of the job or a
product.

 It can include no of columns as per the

requirements.

 It discloses various components of the

cost as required by management for
effective decision making.
 PROFORMA OF COST
SHEET
PARTICULARS TOTAL COST Rs. TOTAL COST Rs.

Opening Stock Raw Materials

Add: Purchase
Add: Carriage Inward
Add: Octroi and Customs Duty
Less: Closing Stock of Raw Materials
Cost of Direct Material Consumed
Add : Direct Wages
PRIME COST
Add: Works of Factory Overheads
Indirect Materials
Indirect Wages
Leave Wages
Bonus to Workers
Overtime Wages
Fuel and Power
Rent and Taxes
Insurance
Factory Lightings
Supervision
Works Stationery
Canteen and Welfare Expenses
Repairs
Works Salaries
Depreciation of Plant and machinery
Works Expenses
Gas and Water
Technical Director’s Fees
Laboratory Expenses
Works Transport Expenses
Works Telephone Expenses
PARTICULARS TOTAL COST Rs. TOTAL COST Rs.

Add: Opening Stock of Work-in-Progress

Less: Closing Stock of Work-in-Progress
Less: Sale of Waste ( Scrap )
WORKS COST
Add: Office and Administration Overheads
Office Salaries

Directors Fees
Office Rents And Rates
Office Stationary and Printing
Sundry Office Expenses
Depreciation on Office Furniture
Subscription to Trade Journals
Office Lightings
Establishment Charges
Directors Travelling Expenses
Consultants Fees
Contribution to Provident Fund
Postage
Legal Charges
Audit Fees
Bank Charges
Depreciation &Repairs of Office Equipments
Bonus to Staff
COST OF PRODUCTION
Add :Opening Stock of Finished Goods
Less: Closing Stock of Finished Goods
COST OF GOODS SOLD
PARTICULARS TOTAL COST Rs. TOTAL COST Rs.

Add: Selling & Distribution Overheads

Advertising

Show Room Expenses

Salesman’s Salaries and Expenses Packing
Expenses
Carriage Outward
Commission of Sales Agents
Cost of Catalogues
Expenses of Delivery Vans
Collection Charges
Travelling Expenses
Cost of Tenders
Warehouse Expenses
Cost of Mailing Literature
Sales Manager’s Salaries
Insurance of Showroom
Sales Director’s Fees
Sales Office Expenses
Rent of Sales Office
Depreciation of Delivery Vans
Expenses of Sales Branch Establishments
Branch Office Expenses
TOTAL COST OF SALES
Profit or Loss
SALES
 NON COST ITEMS

Non-cost items are those items which do not form part of cost of a
product. Such items should not be considered while ascertaining the cost
of a product.

These are items included in the Profit & Loss A/c.

These will not come in the cost sheet
a) Income tax paid
b) Interest on capital
c) Interest on loan
d) Profit/Loss on Sale of fixed assets
e) Donations
f) Capital Expenditure
g) Discount on shares & Debentures
h) Commission to Partners, Managers etc
i) Brokerage
j) Preliminary Expenses Written off.
k) Wealth tax etc
 Realization
OF
Cost Accounting and Financial Accounting
 Both are similar to each other in the following
cases-:
1. The fundamental principles of double entry is applicable in
both systems.
2. The invoices and vouchers constitute the common basis
for recording the transactions.
3. The results of business are revealed by both the systems
of accounts.
4. The causes for losses and wastages of a business are
provided by both these systems of accounts.
5. The determination of future business policy is guided by
both these systems of accounts.
6. A basis for comparison of expenses is being provided by
both the accounting systems.
THANK YOU