Post on 05-Apr-2018
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Cost ConceptsCost Concep
ts
By;By;
P.K.GargP.K.Garg
DGM (NESCL)DGM (NESCL)
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Accounting?Accounting?
Financial accounting
Cost accounting
Management accounting
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What is Cost?What is Cost?
Resources sacrificed to achieve some
objective (cost object )
Two basic stages
Cost accumulation
Cost assignment to cost objects.
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Cost Concepts and TermsCost Concep
ts and Terms
Direct and Indirect cost
Traceable , Convenience
Helps in preparing cost sheet and analyzing
the cost structure of a product or service.
Fixed , variable and semi variable Cost
Behaviour of costs in terms of variability with
volume
Useful in decision making, marginal costing,
B.E and budgeting etc
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Cost Concepts and TermsCost Concep
ts and Terms Controllable and Non-controllable costs
Level of authority , within time period,discretion , manager identifiable -
responsibility accounting system.
Standard, budgeted and actual costs
Standard costs are what costs should be
Budgeted costs are what costs would be
Actual costs are what costs are or what
cost has been Helps in cost and budgetary control
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Cost Concepts and TermsCost Concep
ts and Terms
Opportunity costs
benefit foregone on the immediate next bestalternative
Notional cost ,provide a comparison to decision
maker at the time of decision. Book cost and out of pocket cost
Book costs do not involve cash outflow-- like
depreciation.
Out of pocket costs involve cash out flow --R
Mat.
Helps in preparing cash flow statement and in
cash planning
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Cost Concepts and TermsCost Concepts and Terms
Marginal, Incremental and differential
Costs
No difference
Allocated and apportioned Costs
Allocated costs can be traced
Apportioned costs cannot be directly traced
are also called common costs .
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Cost Concepts and TermsCost Concepts and Terms
Sunk Costs
Sunk Costs are not relevant for decision
making.A cost become sunk if the purpose for which
the cost is to be incurred, is not be served and
cost incurred is irrecoverable Joint and By product costs
Split off point
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What is the difference between
Cost control and Cost reduction?
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Value Chain of
Business Functions
Marketing
Production
Distribution
Customer
Service
Design of
Processes
Research &
Development
Design of
Products/
Services
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VALUE ADDITION BY THE COMPANY
Physical
Assets
Human
Assets
Monetary
Assets
Systems
Procedures
Information
Systems
Purchase
Price of
Bought out
ComponentsProcessing
Sale Price
of Finished
Products
Customer
Supplier
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Strategic Cost Management
Information System
Cost Accounting Cost Management Strategic Cost Management
Process
Control
Inventory
ValuationAd Hoc
Issues Techniques Tools
Financial
StatementsInventoryCost of
Sales
Attention
DirectingVariancesFeedbackInternal
Reports
ScorekeepingProfitabilityBudgetsMake/BuyDecisionsInternal
Reports
Bench MarkingTotal Quality ManagementActivity Based CostingActivity Based Management
Re-engineeringTheory of ConstraintsMass CustomizationTarget CostingLife-Cycle CostingBalanced Score Card
Cost LeadershipDifferentiationFocus
OUTPUT
OBJECTIVES
FUNCTIONS
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Cost Based Information
Cost accounting system accumulates cost datafor use in both managerial and financialaccounting for example production cost datais used both for setting prices (managerial )
and to value inventory ( financial ).Cost accounting data could be looked at from
the perspective of decision making as :
by nature: direct and indirect
by function: finance or marketing
by behavior: fixed andvariable
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