Cost accounting

Cost Accounting
• “Accounting for costs classification and
analysis of expenditure as will enable the total
cost of any particular unit of production to be
ascertained with reasonable degree of
accuracy and at the same time to disclose
exactly how such total cost is constituted”..
 Objectives of Cost Accounting
• a) To ascertain the Costs under different situations using different
techniques and systems of costing
• (b) To determine the selling prices under different circumstances
• (c) To determine and control efficiency by setting standards for
Materials, Labour and Overheads
• (d) To determine the value of closing inventory for preparing
financial statements of the concern
• (e) To provide a basis for operating policies which may be
determination of Cost Volume relationship, whether to close or
operate at a loss, whether to manufacture or buy from market,
whether to continue the existing method of production or to
replace it by a more improved method of production....etc
 Scope of Cost Accountancy
• Cost Ascertainment
• Cost Accounting
• Cost Control
• Cost Report
• Cost Audit:
 Elements of Cost
• Direct Material + Direct Labour + Direct
Expenses = Prime Cost
• Indirect Material+ Indirect Labour + Indirect
Expenses = Overhead
 (i) Production or Manufacturing Cost

• 1) Direct Material
• (2) Direct Labour
• (3) Direct Expenses and
• (4) Factory overhead, i.e., aggregate of factory
indirect material, indirect labour and indirect
expenses
 Administration Cost
• (1) Salaries of office staff, accountants,
directors
• (2) Rent, rates and depreciation of office
building
• (3) Postage, stationery and telephone
• (4) Office supplies and expenses
• (5) General administration expenses
 Selling & Distribution Costs:
• (1) Salaries and commission of salesmen and
sales managers.
• (2) Expenses of advertisement, insurance.
• (3) Rent, rates, depreciation and insurance of
sales office and warehouses.
• (4) Cost of insurance, freight, export, duty,
packing, shipping, etc.,
• (5) Maintenance of Delivery vans.
 Research & Development Costs:
• 1) Development of new product.
• (2) Improvement of existing products.
• (3) Finding new uses for known products.
• (4) Solving technical problem arising in
manufacture and application of products.
• (5) Development cost includes the costs
incurred for commercialization /
implementation of research findings
 Classification based on Behaviour
• – Fixed,
• Semi-variable
• Variable
 Classification based on Costs for
Management Decision Making
• Marginal Costing
• Differential Cost
• Opportunity Cost
• Replacement Cost
• Relevant Costs
• Imputed Cost
• Sunk Costs
• Normal Cost & Abnormal Cost
• Controllable and Non-Controllable Costs