Sie sind auf Seite 1von 18

COST

 COST: It may be defined as the


monetary value of all sacrifices
made to achieve an objective (i.e. to
produce goods and services)

S.K.SONI 1
The Meaning of “Cost”?

The sacrifice
made, usually
measured by the
resources given
Product Costs up, to achieve a
Period Costs
particular
The cost Costs that are
assigned to
purpose.
identified with
goods that were the period in
either purchased which they are
or manufactured incurred.
for resale.

S.K.SONI 2
COSTING
 Costing is simply cost finding.
 It may be defined as “the technique and
processes of ascertaining costs”.
 “Costing is classifying, recording and
appropriate allocation of expenditure for
the cost determination of the product or
services”

S.K.SONI 3
ELEMENTS OF COST

There are 3 major elements of costs:

Labour Expenses
Materials
The cost of Cost other than
commodities paying employees
supplied to material &
includes salaries,
undertaking. bonus, etc. labour

S.K.SONI 4
ELEMENTS OF COST
There are 3 major
elements of costs

MATERIAL LABOUR EXPENSES

Direct Indirect Direct Direct Direct Indirect


Material Material Labour Labour Expenses Expenses

S.K.SONI 5
MATERIAL
Cost of commodities supplied to an undertaking.

 DIRECT MATERIAL:
Generally becomes a part of finished product.
e.g. fibre, for spinning Mill, sugarcane for sugar
factory.
 INDIRECT MATERIAL:
Necessary in production process but not
become integral part of product.
e.g. Oil, Grease, sand paper,

S.K.SONI 6
LABOUR
Cost of remuneration (expenses on wages) includes salaries,
bonuses
 DIRECT LABOUR
Wages paid to employees engage in converting raw
material into finished product.
e.g. sider,
 INDIRECT LABOUR
Wages paid to employees those who are not engage
in production process.
e.g. Security Guards.

S.K.SONI 7
EXPENSES
All the cost other than material and labour are termed as
expenses.
 DIRECT EXPENSES

Expenses which are specifically incurred on particular


job/product.
e.g. Power, design cost, etc.

 INDIRECT EXPENSES
All the indirect cost other than indirect material and
indirect labour are termed as indirect expenses.
e.g. Telephone bill, Rent, Insurance, etc.

S.K.SONI 8
PRIME COST

PRIME COST

DIRECT DIRECT DIRECT


MATERIAL LABOUR EXPENSES

S.K.SONI 9
OVERHEADS

OVERHEADS

INDIRECT INDIRECT INDIRECT


MATERIAL LABOUR EXPENSES

S.K.SONI 10
OVERHEADS

OVERHEADS

PRODUCTION OFFICE & ADMN. SELLING & DIST.


OVERHEAD OVERHEAD OVERHEAD

S.K.SONI 11
Overheads- Classification
Factory / Works Overheads
Consist of all overhead costs incurred from the stage
of procurement of material till the production of
finished goods.
Indirect material such as Consumable stores,
Cotton waste, oils and lubricants, stationary
material etc.
Indirect labour cost such as wages paid to
foreman/storekeeper, salary of works
manager, Accountant/Personnel dept. salaries etc.
Indirect Expenses cost such as Carriage inward
cost, Factory lightening/power expenses, rent/
Insurance /repairs for factory
Rights reserved by Prof. Bhagyab
shru
ee iKlud
lkairn
ni g/machinery, depreciation on factory
Selling and Distribution Overheads
These overhead consist of all overhead
cost incurred from the stage of final manufacturing of
finished goods till the stage of sale of goods in the
market and collection of dues from customers.
Indirect material such as packaging material,
samples etc.
Indirect labour like salaries paid to sales personnel,
commission paid to sales manager.
Indirect expenses like carriage outward, warehouse
charges, advertisement, bad debts, repairs and
running of distribution van, discount offered to
customers etc.
Classification of Expenses
A. Direct Material
Direct Labour Prime Cost
Direct Expenses

B.Works Expenses,
Works or Factory cost
Indirect Materials
i.e. A + B
Indirect Labour
(Also often Production Cost)
Rent & taxes of factory
premises, Depreciation,
Repairs, Fuel & power etc.

C.Office Expenses
Office Cost
Office Rent, Rates,
i.e. A + B + C
Stationary
Or Cost of Production
Directors fees etc.
Classification of Expenses

D. Selling Expenses, such as


Sales staff salaries
Show room expenses Cost of Sales,
Advertising i.e. A + B + C +D
Carriage outwards
Packing
Bad Debts

E. Plus Profit Selling price


Or i.e. A + B + C + D +E
Minus Loss
Expenses excluded from Costs
Item of expenses which are apportionment of profit
should not form a part of the costs. These are-
Income tax
Dividend to share holders
Commission to partners, managing agents etc.
Capital Loss
Interest on Capital
Interest paid on debentures
Capital expenses etc.
Treatment of Stock
Stocks are generally categories as-
I. Raw Material
II. Work-in-progress
III. Finished Goods

Stock of raw materials should be adjusted in order to


find out cost of consumption of raw materials:
Value of Raw material consumed =
Opening Stock of Raw Material + Net Purchases –
Closing Stock of Raw Materials
Treatment for semi finished goods
Work-in-progress is Semi finished goods at the time
of finding of Total Cost of Production.
Work-in-progress consists of :
I. Cost of Materials to date
II. Cost of labour to date
III. Manufacturing expenses to date

The amount of work-in-progress consumed is excess


of opening balance of work-in-progress over closing
work-in-progress.