Introduction to cost accounting and cost concepts

By D.Sreekanth

Definition of cost accounting

CIMA, London, defines Cost Accounting as the process of accounting for cost form the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centers and cost units. In its widest usage it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned.

Classification of costs
By Nature of Element By Function By Traceability By Variability By Controllability By Normality By Capital and Revenue By Time

Classification of costs

By Association with the Product By Planning and Control By Managerial Decisions Other Types of Cost

By Nature of Element
Materials Labor Overheads

By Functions
Manufacturing and Production Costs Administrative Costs Selling and Distribution costs

By Traceability
Direct costs Indirect costs

By Variability
Fixed costs Variable costs Semi-variable costs

By Controllability
Controllable costs Uncontrollable costs

By Normality
Normal costs Abnormal costs

By Capital and Revenue

Capital Expenditure Revenue expenditure

By Time
Historical costs Predetermined costs

By Association With Product

Product costs Period costs

According to Planning and Control

Budgeted costs Standard costs

Managerial decisions
Marginal cost Out of pocket costs Differential costs Sunk Costs Opportunity costs Replacement Costs Avoidable and unavoidable costs

Other Types of Costs

Future cost Programmed cost Joint cost Conversion cost Discretionary cost

Costs units and Cost centers

The managers are interested in knowing the cost of something. The something for which the cost has to be ascertained is known as cost objective or cost object or cost unit. The smallest segment of the activity or area of responsibility for which costs are accumulated.

Characteristics of Cost Information

Cost of tracing Cost allocation Cost driver

Particulars Opening stock of raw materials Add: Purchases Less: Closing Stock Raw material Consumed Add: Direct Labor Direct Expenses PRIME COST Add: Factory over head Add: Opening Stock of WIP Less: Closing Stock of WIP Less: Sale of Scrap FACTORY OR WORKS COSTS Add: Administrative overheads COST OF PRODUCTION ( COP ) Add: Opening Stock of Finished Goods Less: Closing Stock of Finished Goods COST OF GOODS SOLD ( COGS ) Add: Selling and Distribution Overheads COST OF SALES ( COS ) Add: PROFIT SALES

Amount (Rs.) XX XXX XXX XXX

Amount(Rs.)

Per Unit

XXX XXX XXX XXX XXX XX XX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX XX XX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

TECHNIQUES OF COSTING
Historical costing Absorption costing Marginal costing Direct costing Standard costing Uniform costing

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