CAPITAL EXPENDITURE BUDGET

The capital expenditures budget identifies the amount of

cash a company will invest in projects and longterm assets.

Although funds for expenditures may be identified and
approved in total during the budget process, most companies
have a separate process for approving funds for the specific
items included in a capital expenditures budget.

The process includes a financial evaluation to determine
whether the company's return on investment targets are met
and, once the targets are known to be met, a qualitative
review by a top management team.
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Many companies include longterm assets, such as joint
ventures, purchases of other companies, and purchases or
leases of fixed assets, as well as new products, new markets,
research and development, significant marketing programs,
and information technology items in their capital expenditures
budgets.
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Particulars Amount
Total Capital Expenditure Required 10 lacs
Available fund for Capital Expenditure 2 Lacs
Other Sources of funds for Capital Expenditure 8 Lacs
METHODS
OF
COSTING
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COST ACCOUNTING is the
classifying, recording and
appropriate allocation of
expenditure for the
determination of the costs of
products or services, and for
the presentation of suitably
arranged data for the purpose
of control and guidance of
management.
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JOB COSTING
PROCESS COSTING
SERVICE OR OPERATING COSTING
BATCH COSTING
CONTRACT COSTING
Methods of Costing
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Job costing is suitable where work is undertaken
to customers special requirement and each order
is of comparatively short duration.

FEATURES OF JOB COSTING:
Production is undertaken after obtaining
customers order.
Identity of each order is retained from start to
finish.
Cost information is collected for each job
For ex: Printing jobs, furniture, garage job etc.
JOB COSTING
Provides detailed analyses
of cost regarding material,
wages and overheads

Records costs more
accurately and becomes
basis for estimation in future
for similar jobs

Useful in quoting cost plus
contract



Great deal of clerical work
on daily basis

Difficulty in cost comparison

Does not control cost
control in lack of standard
cost


Advantages Disadvantages
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Batch costing is a specific order costing which applies
where similar articles are manufactured in batches
(either for sale or for use within the undertaking).




FEATURES OF BATCH COSTING:
Reduces overall cost of the product as if
components are manufactured in batches of large
quantity.
Costs are collected against each batch
For Ex: Pen manufacturing
BATCH COSTING
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Contract costing is another variation of job
costing. It applies where work is undertaken to
customers special requirements and each order
is of long duration. The work is generally of
constructional and repairs nature.

FEATURES OF CONTRACT COSTING:
The contract terminates on its completion.
Work is carried out at a site other than
contractors own premises.
For Ex: Construction of buildings, bridges and
plant.
CONTRACT COSTING
TYPES OF CONTRACT
A. Fixed Price Contract: Agreed fixed price (generally
with escalation clause)

B. Cost Plus Contract: Actual cost of contract Plus
reasonable profits (maximum limit for such cost Plus
profit)
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1. Small jobs

2. Generally performed at the
workshop location

3. Less time consuming

4. Full payment after job

5. Expenses involves both
Direct & Indirect





1. Big size contracts (quantum)

2. Performed at site

3. More time consuming

4. Part payment made in advance

5. Generally Direct expenses are
made


Job Costing Contract Costing
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Process Costing method is applicable where goods
result from a sequence of continuous or repetitive
operation or process to which costs are charged before
being averaged over the units produced during the
period.



It is best suitable for organizations where the work
cannot be stopped and is continuously performed
throughout the year (I.e.24 hours a day and 7 days a
week) except for stoppage for maintenance work.
PROCESS COSTING
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FEATURES OF PROCESS COSTING:

Production is done having a continuous flow of identical
products except where plant and machinery is shut down
for maintenance, etc.

Clearly defined process cost centres

Product of one process becomes input-material of another
process.

Avoidable and unavoidable losses arise at different stages
of manufacture for various reasons. Abnormal gain also
arises.
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Unit cost is computed by dividing total departmental cost by total
departmental production including work-in-progress.

As production is continuous, work-in-progress shall remain in partly
completed stage at the end of each accounting period.

Process cost for the period shall be apportioned between completed
and incomplete units considering stage of completion of units in
work-in-process.

Loss in the process due to evaporation, scrap, spoilage, chemical
reactions, etc., are added to the good units produced.

Generally Process Accounts, Finished Stock Account, Normal &
Abnormal loss Accounts are maintained.
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Costs of completed units of a department are transferred to
the next processing department either at total cost or at some
predetermined transfer price, just to compare with the
market price.

More than one product may emerge at the end of a
process/operation.

Depending upon the realizable value of the product, it may be
termed as either Joint Product or By product.

Mostly used in Iron and steel, textiles, chemicals, cement &
paper industries.

Contract Account, Contractees Account and Balance Sheet is
prepared.
Possible to determine
process cost at short
intervals

Possible to have better
managerial control by
evaluation performance of
each process

Comparatively easy to
allocate expenses and
arrive at an appropriate cost

Easy to establish Standard
costing



Valuation of work-in-
progress in done on
estimation basis which
results into inaccurate costs

If different products pass
through same process, it
becomes difficult to arrive at
the correct cost

Single computation error will
be carried forward to next
stages


Advantages Disadvantages
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1. Production against order

2. Cost per job

3. Cost is calculated when the
job is complete

4. May or may not be WIP at
the end of accounting period

5. Control is difficult as jobs are
different

6. Suitable for customized
orders





1. Production in continuous flow

2. Cost per process

3. Cost is calculated at the end of
cost period

4. Always presence of WIP at the
end of accounting period

5. Easier control due to
standardization of jobs

6. Suitable for products to be kept
in stock


Job Costing Process Costing
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This method applies to activities that
provide a service rather than producing
goods.

This method may be used for both services
to outside customers as well as internal
use (in an manufacturing unit, certain
sections may provide ancillary services to
production department, such as canteen,
maintenance, etc).

In this method operating costs are
collected periodically.
SERVICE OR OPERATING COSTING
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MAIN FEATURES:

Composite cost units are more commonly used than single
cost unit.

Costs are usually grouped under fixed costs and variable
costs.

THIS METHOD IS USUALLY APPLIED TO:
Transportation services like road, rail, air; Utility services like
hospitals, canteen; Distribution services like electricity, gas;
Professional services like courier service, management
consultants etc.
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