Você está na página 1de 13

Naveen Rohatgi- 9867451833

Basics concepts of cost accounting

FYBAF- Costing

If a concern is manufacturing number of project, its Profit and Loss Account shows the lump sum amount of net profit or loss from all products taken together. The profits from some products are set off against losses, if any from other products and only the net result is shown in the Profit and Loss Account. Financial Account thus fail to give a product-wise break up of profit or loss .In case of a construction company, the Profit and Loss Account shows the net profit or loss from all contracts taken together. The Financial Account do not indicate the profit or loss made on each contract separately. Similarly, if a concern has a number of processes, divisions or branches, the Profit and Loss Account shows the net profit or loss from all process, divisions or branches taken together. Financial Accounts do not show the profit or loss made by each process, division or branch separately. Financial Accounts fail to ascertain the individual cost/ profitability of each product or contract or process etc.separately.Cost Accounting grew out of this serious limitation of Financial Accounting. The management of any concern is identifying products which are profitable so that it can concentrate upon the profitable activities and discontinue the loss-making products. Each product, contract, process, division or branch is known as a cost centre. Cost Accounting fulfils this objective by ascertaining the individual cost of each product, contract, process or division. COST CONTROL Financial Accounts merely record the expenses incurred. The management, however, is more interested in guiding and regulating the expenses themselves, i.e. in Cost Control. Thus Financial Accounts show the expenses paid for purchase of Raw Material and stop at that. Financial Accounts fail to show whether the raw materials have been used efficiently; whether the output is normal or whether there is any abnormal waste during the of production and so on. Cost Accounting has evolved effective techniques to assist management in Cost Control at every step. Thus Cost Accounting helps the management to control the cost of materials, labour and expenses by means of an elaborate system of recording, classification and reporting of cost to the management. Cost Accounting techniques such as Standard Costing compare the operating results of the concern with Industry Standards or with past data to judge the efficiency or productivity of the concern. QUANTITATIVE RECONCILIATION Financial Account report data in terms of Rupees only. They ignore the quantitative aspects of Input and Output. Efficiency or productivity of a concern depends upon obtaining the maximum quantity of output from a given quantity of input. Cost Accounting provides useful data regarding quantity of Input, quantity of Wastage or Scrap and quantity of Output. Cost Accounting helps in Quantitative Reconciliation and controlling the movement, leakage and wastage of materials.

Naveen Rohatgi- 9867451833

FYBAF- Costing

DECISION MAKING AND PLANNING Financial Accounting is based on past records. Further, the Final Accounts (Profit and Loss Account and Balance Sheets) are available generally well after the accounting year is over. The information in the Financial Accounts is thus historical as well as stale which is not at all useful for the management for taking decisions in time, or for planning the future activities of the organization. Cost Accounting Techniques such as Forecasting, Marginal Costing, Budgets etc. were developed to help the management in the making decisions or planning for future such as1. Fixing the price of a product or submitting tenders or quotations. 2. Taking decisions about how much to produce, whether to make a component or buy it from outside, and. 3. Preparing Budgets for future and monitoring variance of the actual figures from the budgeted figures of Cost, Profit etc. FINANCIAL ACCOUNTING .VS. COST ACCOUNTING Feature 1. Nature Financial Accounting (FA) FA records, report and analyses financial transactions of a concern. 2. Use 3. System 4. Period 5. Reports FA is used even by outside entities e.g. investors, creditors, banks etc. FA uses the double-entry system for recording financial data. FA is for specific period e.g. a financial year. FA results are shown in P & L A/c and Balance Sheet. 6. Data 7. Decisions FA discloses past data. It is a post mortem. FA cannot decisions. be used for managerial Cost Accounting (CA) CA records, report and analyses cost of each cost centre (product, contract, process etc.) CA is used only the management of the concern CA does not use the double-entry system for collecting cost data. CA concentrates on cost centers and not on period. CA results are shown in Cost Sheets / Costing Profit & Loss A/c. Contract A/c. Process A/c. CA discloses current data or future estimates. CA is used for making decisionspricing, product-mix, how much to produce etc.

Cost means the amount of expenditure incurred an a particular thing. Thus, a cost of TV set means the total expenses such as material, labour etc incurred on manufacturing and selling a set of TV.

Naveen Rohatgi- 9867451833

FYBAF- Costing

Costing involves the following basic aspects ; Ascertain, Analyse, Allocate, Apportion a

1) 2)

Ascertain Cost : Ascertain or collect all the expenses relating to a particular period. Analyse Cost : Analyse or classify the expenses under different heads of account such as Material, Labour , Expenses.

3)

Allocate Cost : Allocate or charge in full the Direct Expenses or the specific costs such as Raw Materials, Labour to relevant product, contract or process.

4)

Apportion Costs : Apportion or distribute Common Expenses to each product, contract or process o a suitable basis. Cost Reporting Cost Reporting or Presentation has following aspects or objectives:

1. What to Report : The information should be relevant and precise. 2. Whom to Report : This will determine the scope of report. The report to be submitted to the Top
Management will be short, while the report to the Cost Accountant will be detailed.

3. When to Report: When is the report to be presented whether Daily, Weekly, Monthly, Quarterly
or Yearly etc. The scope and format of the report will depend upon the frequency of reporting.

4. How to Report : The format will depend upon the factors mentioned above. Once the cost report
is received, management can taken action to control the costs. Cost Control Thus, Cost Control means the control of costs by management. Following are the aspects or stages of Cost Control:

1. Set Targets : Set up target for Cost, Production, Profits etc. for each period. 2. Measure Actual Performance: Measure the actual figures of performance relating to cost,
production, profits etc. for period concerned.

3. Compare Targets with Actual : The figures of actual performance are to be compared with the
figures of targets to find out the variations.

Naveen Rohatgi- 9867451833

FYBAF- Costing

4. Analyse Variations: The causes for variations whether favorable or adverse are to be
investigated. While adverse variations denote wastages and losses, favorable variations may indicate that the targets fixed are very low. In both the cases it is important to know the exact reason for the variations.

5. Taken Action: Once the causes are known, immediate action has to be taken to eliminate
avoidable losses etc. IMPORANCE AND ADVANTAGES Cost Accounting is important not only to the management and owners but also to many others like the workers, the Government, the consumers, the public at large and so on. The advantages from a well organized Cost Accounting System to all these section public are explained in details below: MANAGEMENT AND OWNERS

1)

Ascertaining Cost / Profitability of Each Product :

Cost Accounting enables the

management of the concern to ascertain the cost and profitability of each individual product/service/contract/ process/division/branch separately. The cost of production of each product so determined is also used for valuation of closing stock of goods at the end of the year.

2)
Industry

Cost Control : Cost Accounting helps the management of the concern in controlling Standards or past data helps the management in judging and improving its

costs, reducing avoidable expenditure, and minimizing wastages and losses. Comparison with performance.

3)

Quantitative Reconciliation : Cost Accounting ensures the reconciliation of quantity of

input with the quantities of output, wastages and scrap. The management is thus able to regulate and monitor the movement of materials right from the raw materials Store to the finished Goods Warehouse. This prevents theft and loss of materials during processing and handling.

4)

Decision Making and budgetary Control : Cost Accounting is a great help to the

management in taking serval decisions such as: Which products to produce more, How much to produce, Whether to make or buy a component,

Naveen Rohatgi- 9867451833 -

FYBAF- Costing

What price to charge, or quote in a Quotation or Tender, and so on. Thus Cost

Accounting is an invaluable laid to decision making. Further, Cost Accounting facilitates preparation of budgets and implementation of Budgetary Control in the organization.

5)

Maximization of Profits and Net Worth: The end result of all the above advantages of

Cost Accounting is the maximization of profits of the concern. This benefits the owners by increase in the Net Worth or the Share prices, higher dividends and so on. WORKERS Cost accounting has an elaborate system of assessing the performance of workers and rewarding them suitably through incentives and bonus. The increase in profit due to a Cost Accounting System also leads to higher remuneration and bonus to the workers. GOVERNMENT / CONSUMERS / PUBLIC

A.

Fixing Fair Prices: In case products e. g. drugs or fertilizers are under price control,

Cost Accounting furnishes the data required by the Government for fixing fair prices. Consumers benefit since the prices fixed on the basis of cost data just and reasonable and cannot be too high.

B.

Efficiency and Prosperity: Cost Accounting leads to efficiency and productivity in the

Industrial sector. Cost Accounting ensures optimum utilisation of the scarce economic resources of the country. This leads to overall prosperity and economic growth of the nation and the people at large. Cost Accounting leads to maximum profits for an organization. Naturally the Government also gains by way of more taxes on productions (Excise), income (Income Tax) and sales (Sales Tax Costume Duties) etc. the higher revenue is used by the Government for Public Welfare and economic development. ITEMS EXCLUDED IN COST ACCOUNTS Cost Account mainly helps to determine the cost of a cost centre or a cost unit. It further helps in ascertaining the profit or loss in respect of a cost center or a cost unit. Thus Cost Accounting exclusively concentrates upon the Cost and Income of a centre or Unit. Hence the following items appearing in the Financial Accounts are excluded from Cost Accounting: (a) Financial Charges (b) Financial Losses (c) Financial Income, and (d) Appropriations of Profit. Let us study these items in detail.

Naveen Rohatgi- 9867451833


FINANCIAL CHARGES

FYBAF- Costing

These are the expenses for financing or raising capital for the concern. Since these have no effect on the cost of an particular cost center or cost unit, they are ignored in Cost Account. Financial Charges cover the following items :

(1) Interest on loans, debentures, fixed Deposits etc. (2) Shares issue expenses, discount on issue, underwriting commission, share Transfer expenses
etc.

(3) Fines and penalties (4) Cash discount.


FINANCIAL LOSSESS Theses are capital losses like loss on sale of fixed assets, loss by fire etc. having no relation with the cost of a center or unit. These too are excluded in Cost Account. Financial Losses mean the following items. (i) Loss on sale of fixed assets, investment, property etc. (2) Compensation or damages paid as ordered by Court, (3) Loss by fire, theft or any natural calamity (4) Bad Debts written off. FINANCIAL INCOME Since a Cost Sheet is concerned with only the income from sale of a product items of purely financial nature not attributable to the product are ignored in Cost Accounting Financial Income means the following items : (1) Rent from property (2) Profit on sale of fixed assets, investments etc. (3) Interest and Dividends earned on investments, deposits (4) Damages received under order of Court (5) Discount Received. (6) Windfall Gains, Capital Gains etc. APPROPRIATIONS OF PROFIT

Naveen Rohatgi- 9867451833

FYBAF- Costing

Cost Accounting is not concerned with the appropriation or application of profit e.g. payment of taxes, dividends etc. These cover the following items : (1) Income Tax (2) Write offs relating to intangible assets such as Goodwill, Preliminary Expenses, Discount on Issue of Share etc. (3) Charities and Donations (4) Dividends (5) Transfers to Reserves and Sinking funds etc.

Chapter 2: Elements of Cost

COST CLASSIFICATION

COST CLASSIFICATION

BEHAVIOUR
1. Fixed Cost 2. Variable Cost

TIME

FOR MANAGEMENT
1. Marginal Cost 2. Opportunity Cost 3. Replacement Cost 4. Imputed Cost 5. Sunk Cost.

ELEMENTS
1. Material Cost 2. Labour Cost 3. Expenses

1. Historical Cost 2. Pre-determined Cost a) Standard Cost b) Estimated Cost

Cost Centre/ Cost Unit Wise Elements

6. Controllable Cost

Naveen Rohatgi- 9867451833


7. Uncontrollable Cost 1. Prime/Direct Cost

FYBAF- Costing

Direct Material Cost Direct Labour Cost Direct Expenses 2. Overheads/Indirect Cost Factory Overheads Office/Administrative Overheads Sale/Distribution Overheads CLASSIFICATION ON BASIS OF BEHAVIOUR Cost are classified, on the basis of behavior into Fixed Cost, Variable Cost.

FIXED COST Fixed costs means a cost which tends to be unaffected by variations in volume of output. Fixed Costs depend mainly on effluxion (passage) of time and so not vary directly with volume or rate of output. Fixed Costs are sometimes referred to as period costs. These costs remain fixed whatever the quantity of output. These costs do not increase when the output increases and do not decrease when the output is lower. Rent, depreciation, insurance of factory building are some examples of fixed costs. VARIABLE COSTS Variable Cost means a cost which tends to vary directly with volume of output. Variable costs are sometimes referred to as Direct Cost. These costs vary according to the quantity produced. These costs increase when the output increases and decrease when the output is lower. Direct Material Cost, Direct Wages, Direct expenses are some examples of variable costs. CLASSIFICATION ON BASIS OF TIME Costs are classified, on the basis of time, (1) Historical Costs, and (2) Pre-determined costs. HISTORICAL COSTS

Naveen Rohatgi- 9867451833

FYBAF- Costing

Historical Costs are the actual costs as per the past records. These are used in Unit Costing to ascertain the cost of a product; in Contract Costing to ascertain the cost of contract and in Process Costing to ascertain the cost of a process. PRE-DETERMINED COSTS Pre-determined costs are Future Costs determined in advance on the basis of standards or Estimates. Thus, per-determined costs are of two types (1) Standard Cost, and (2) Estimated Cost.

1)

Standard Cost: Standard Costs is a pre - determined cost calculated on the basis of standards of efficient operations and relevant necessary expenses. Standard Costs are used as a basis of fixing prices and for cost control through analysis of variances.

2)

Estimated Cost: Estimated costs are calculated in advance of production or even before accepting sales order. These may be based on past data. These, however, are not scientifically calculated and hence are less reliable than Standard Costs. CLASSIFICATION FOR MANAGEMENT Costs may be classified according to the information required by the management for making various decisions. Such costs are classified as follows.

MARGINAL COST Marginal Cost is the amount by which the costs change, if the output is changed by one unit. Marginal cost is based on the classification of costs into fixed Costs and Variable Costs explained above. These costs help the management in taking decisions about volume of output, fixing prices etc.The marginal cost refers to variable cost. OPPORTUNITY COST Opportunity Cost is the cost of the alternative use of an asset. Thus, if deposits in Bank are withdrawn for purchase of machinery, the opportunity cost would be the loss of interest on bank deposits. It should be noted that opportunity cost is not formally recorded in accounts or cost records. It is specially computed only for the purpose of decision taking by management, whenever required. REPLACEMNT COST Replacement Cost is the cost at which an existing asset or material can be replaced at current market price. For many managerial decisions, replacement cost or current market price is more relevant than the historical cost or book value of the asset or material. IMPUTED COST Imputed Cost is hypothetical or notional cost not involving any actual cash payment. Interest on owners capital or rent on own property are examples of imputed costs.

Naveen Rohatgi- 9867451833


SUNK COST

FYBAF- Costing

Sunk Cost is historical cost not relevant to the decision required to be made by the management at present. Thus, the written down value of machinery is a sunk cost which is not relevant for deciding whether to buy a new machinery for expansion or not. Sunk costs are not affected by increase or decrease in the volume of output. CONTROLLABLE AND UNCONTROLLABLE COST Controllable Cost, on the other hand, is the cost which cannot be influenced or controlled by the concerned cost center or responsibility center. Thus overhead expenses incurred by Head Office, but shared by all branches, cannot be controlled by individual branches. The share of such Head Office Expenses borne by each branch is an Uncontrollable cost. A cost may be uncontrollable for a particular cost center, but may be controllable for another cost center or the management as a whole. For example, Rent for factory may be beyond control for the production department but can be controlled by the administration department by negotiations etc. A cost which is uncontrollable in the immediate future may become controllable over a long period. Thus controllable cost is a relative term depending upon the circumstances. CLASSIFICATION ON BASIS OF ELEMENTS The Total Cost of a manufactured product is made up of various elements such as material, Labour and Expenses. Hence, costs can be classified according to the different elements of expenses i.e. Material, Labour and Expenses. The main elements of Cost are Material Cost, Labour Cost and Expenses.

1) Material Cost: Material Cost is the cost of raw material supplied to the company.. 2) Labour Cost: Labour Cost is the cost of remuneration of the employees of the company 3) Expenses : Expenses mean the cost of services provided to an undertaking.
CLASSIFICATION OF ELEMENTS BASED ON COST CENTRE/UNIT Each of the above costs may be classified on the basis of their relationship with a cost center or a cost unit direct or indirect.

1) 2)

Direct Costs are the costs identified with and allocated to cost centers or cost units. Indirect Cost are the costs which cannot be identified which and allocated to cost centers or cost units. Therefore, Indirect Costs are apportioned to cost centers or cost units on some suitable basis. The terms Cost Allocation, Cost Apportionment, Cost Centers and Cost Units are explained below.

MEANING OF COST ALLOCATION Allocation of Costs has been defined as the allotment of whole items of costs to cost centers or cost units.

10

Naveen Rohatgi- 9867451833


MEANING OF COST APPORTINMENT

FYBAF- Costing

Apportionment of Costs has been defined as the allotment of proportions of items of cost to cost centres or cost units. Thus Allocation refers to charging of Direct Costs to a particular Cost Centre or Cost Unit and Apportionment refers to charging of Indirect Costs on proportionate basis to a particular Cost Center or Cost Unit. COST CENTRE Cost Center means a location, person or equipment for which costs are ascertained. TYPES Cost Centers may be of different types e.g. Personal, Impersonal, Operational, Operational or Process.

1) 2)

Personal Cost Center consists of a person or a group of persons e. g. production manager, Finance, Manager etc. Impersonal Cost Center consists of a location or an equipment (or a group of these) e.g. production centers like machine shop, welding shop, assembly shops; or Service Central like Stores, Transport, Tool Room, etc.

3) 4)

Operational Cost Center operations.

consists of machines and / or persons carrying out similar

Process Cost Center consists of specific processes.

PRIME/DIRECT COSTS Prime or Direct Costs mean the cost of Material, Labour or Expenses which can be directly identified with or attributed to a cost center or a cost unit. Direct Costs can be Direct Material Costs, Direct Labour or Direct Expenses.

1) 2) 3)

Direct Material Cost means the material cost which can be wholly identified with and allocated to Direct Labour Cost means the labour cost or wages which can be wholly identified with and Direct Expenses mean the expenses which can be wholly identified with and allocated to a

a particulars cost center or cost unit. allocated to a particular cost center or cost unit. particular cost center or cost unit. Prime Cost means the total Direct Costs of a cost center or cost unit. Thus. Prime Cost = Direct Material + Direct Labour + Direct Expenses OVERHEADS/INDIRECT COSTS

11

Naveen Rohatgi- 9867451833

FYBAF- Costing

Overheads means the aggregate of indirect costs such as indirect material cost, indirect wages and indirect expenses. Indirect Costs denote the cost of Material, Labour or Expenses which cannot be directly identified with or attributed to a cost centre . However, these are apportioned to cost centers or cost unit on a suitable basis. Total Indirect Costs are made up of Indirect material costs + Indirect Labour Costs + Indirect Expenses.

1)

Indirect Material Cost means the material cost which cannot be identified with or allocated to a

particular cost center or cost unit. However, this is apportioned to or absorbed by cost centers or cost units on a suitable basis.

2)

Indirect Labour Cost means the labour cost which cannot be identified with or allocated to a

particular cost center or cost unit. However, these are apportioned to or absorbed by cost centers or cost units on a suitable basis. Overheads mean the total Indirect Costs apportioned to or absorbed by all cost centers or cost units. Thus, Overheads = Indirect Material + Indirect Labour + Indirect Expenses Direct cost: are those costs which can be conveniently associated wholly with a particular unit of a final product. Direct costs can be directly identified with & allocated to cost centers or cost units Eg: i) materials which form a part of the finished product- cost of wood in a firm manufacturing furniture (ii) wages payable to the worker who is directly involved in production carpenters wages in a firm manufacturing furniture (iii) carriage expenses on raw materials (iv) workers wages (v) Raw material charges Indirect cost : The Institute of Cost and Management Accounts(UK)defines indirect cost as the Cost which cannot be allocated but which can be apportioned to or absorbed by cost centers or cost units. They are incurred for the benefit of more than one product, activity or job and must be apportioned by some appropriate bases to the various functions. Costs which cannot be associated or connected with a particular unit of a final product is termed to be indirect costs. Indirect costs cannot be identified and allocated with cost centers or cost units & therefore they are apportioned on some equitable basis to cost centers or cost units. Eg:i) Advertisement expenses (ii) office rent (iii) packaging expenses(Note- Primary Packing Materials- Direct Cost Secondry Packaging Materials- Indirect Cost) (iv) depreciation on furniture(v) legal expenses (vi) cost of consumable goods (vii) salaries of foreman, supervisor, factory manager (viii) rent and rates (ix) Printing and stationery (x) telephone expenses (xi) heat and light (xii) Maintenance etc2

12

Naveen Rohatgi- 9867451833

FYBAF- Costing

13

Você também pode gostar