COST ACCOUNTING

Meaning:
It is a system of accounting whereby
expenditure is analysed to find total
cost of each particular unit of
production with a reasonable degree
of accuracy and to show how such
cost is made up.
 Objectives of Cost Accounting
• Cost Ascertainment

• Cost Recording

• Cost Control
•Cost Ascertainment
It deals with determining the total
cost of the product, process, job or
contract using various techniques
and methods. It includes
determination of all the cost
component of material, labour and
other expenses.
•Cost Recording
It deals with assessing the input cost
and recording it at each level of
production.
•Cost Control
Cost controls starts by the businesses
identifying what their costs are and
evaluate whether those costs are
reasonable and affordable. It is
comparing actual costs to expected
costs and then managing deviations.
 Uses of Cost Accounting
•It helps in supplying data for financial decisions.
•Helps to ascertain cost per unit of different products.
•Guide to management in the formulation and
implementation if bonus plans based on productivity.
•Helps to disclose source of wastage to exercise
efficient control.
•Provide with data for comparison purposes.
•Provides correct analysis of operations
•Organise effective information system to so that
different levels of management can have right
information at the right time.
 Financial Accounting

Meaning:
It deals with recording of financial
transaction by an organisation that
results in reports to external parties
on the status of assets, liabilities,
equity and changes in the source and
use of funds for an accounting period.
 Cost Accounting v/s
Financial Accounting
Basis Cost Accounting Financial Accounting

Use Internal External

Type of data used Historical, forecasted, Historical

assumptions, estimates
Format Detailed & exhaustive Condensed &
summarised

Frequency of reporting Monthly, quarterly, Annually

weekly or even daily
Legal Requirement Optional Statutory

Coverage Product wise or Organisation as a whole

department wise
Idea of preparation ‘Measure economic ‘Accounting of money’
performance’
Management Accounting

Meaning :
Management accounting deals with
preparing of management reports and
accounts for the purpose of providing of
accurate and timely financial and
statistical information required by
managers to make day to day and short
term decisions.
 Cost Accounting v/s
Management Accounting
Basis Cost Accounting Management Accounting

Purpose Ascertainment of cost Assist management in

formulation of policies
Type of data used Quantitative Both quantitative and
qualitative
Rules of preparation Cost accounting No specific rules
principles
Format Detailed & exhaustive No specific format

Level of management All levels Generally top level

Objective Analysis and Information for policy
evaluation of costs making and strategy
formulation.
 Elements of Cost

Elements of Cost

Material Labour Expenses

Direct Indirect Direct Indirect Direct Indirect

•Direct Expenses
Direct Material

• Raw Materials.
• Material Specific to the job.
• Primary packing materials.

Direct Labour

• Workers engaged in production.

• Analysts specifically required for the job.
• Labours engaged in tool setting, maintenance.

Direct Expenses

• Expenses direct to a particular cost centre.

• Includes excise duty, royalty, cost of rectification etc.
•Indirect Expenses
Indirect
Material

Production & Manufacturing

Indirect
Labour Overheads Administration & Office

Selling & Distribution

Indirect
Expenses
 Classification of Costs
Classification of Cost enables determination of value added in the process of manufacture.

Basis Classification
Time Historical
Pre-determined
Nature of Element Material
Labour
Expenses
Traceability Direct
Indirect
Changes in Volume Fixed
Variable
Semi-variable
 Classification of Costs...
Basis Classification

Function Manufacturing
Administrative
Selling
Research and Development
Accounting Period Capital

Revenue

Controllability Controllable

Uncontrollable
 Costing
Costing is basically a process of
calculating the cost of a product,
process, service, contract and
likewise.
In other words, computing the
amount of money it takes to
produce and distribute one unit
of output.
 Costing v/s Pricing
Cost : The expenditure involved in the manufacture of
a thing or a product.

Price :The amount of money or goods for which a

thing is bought or sold. Price is the value or worth of a
product or a service.

Example:- Popcorn at the movie hall.

Usage : Cost of living, cost of war ;

Exorbitant prices, bargain prices.
CA Pooja Shrivastava