1. Cost accounting Introduction

2. Meaning of Cost

The amount of expenditure attributable to specified thing or activity.

Cost is the value of economic resources used as a result of producing or doing a thing.

ICWA defines cost as measurement , in monetary terms, of the amount of resources used for the purpose of production of goods or rendering services.

3. How is it different form expense & loss

Expense is that portion of cost that has been consumed during the accounting period & contributed to the revenue. It is also calledexpired cost. E.g. depreciation

Loss is that portion of cost that has been consumed during the accounting period & has not contributed to the revenue.E.g. Loss due to fire.

4. Meaning of cost accounting

It is the method of accounting for cost which begins with incurrence of costs & ends with control of cost.

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

5. Meaning of cost unit & cost center

A cost unit is a unit of product, service or time in terms of which costs are ascertained or expressed.

A cost centre is a location, person or item of equipment for which costs are ascertained & used for the purpose of cost control.

6. Meaning of cost accountancy

It is a wider term than cost accounting.

CIMA, london defines cost accountancy as the application of costing & cost accounting principles, methods & techniques to the science , art & practice of cost control & ascertainment of profitability. It includes the presentation of information derived there from for the purpose of managerial decision making.

7. Thus cost accountancy includes. Is the verification of cost accounts. Cost audit Is the achievement of real & permanent reduction in unit cost of products manufactured or services rendered. Cost reduction Involves establishing target performance, measuring actual &comparing with the target, & taking corrective actions.Cost control It is the method of accounting for cost which begins with incurrence of costs & ends with control of cost. Cost accounting Is the technique & process of ascertaining cost. costing 8. Objectives of cost accounting

To ascertain cost.

To control cost.

To provide information for decision making.

To determine selling price.

To ascertain costing profit.

9. Financial accounting & Cost accounting Data used Provide information for decision making. Shows profit made on each product, job or process. Voluntary & made as per requirements of the management. Based on present & future data. Stocks are valued at cost. Provide information of the final results. Reveals results of the business as a whole. Mandatory As per companies act 1956 & income tax act 1961 Based on historical data. Stocks are valued at cost or market price whichever is lower. Objective Analysis of profit Legal requirement Stock valuation CA FA Basis 10. Financial accounting & Cost accounting` CA FA BasisOn control On reporting EmphasisOnly internal management is interested. Whole world is interested in information. Interested parties Monetary & non monetary information is recorded. Only monetary information is recorded. Type of information. Outsiders do not have access. Outsiders have access. Access to accounts Fixes responsibility Does not fix responsibility Responsibility fixation 11. Advantages of Cost accounting

Advantages to management-

• Ascertains cost.

• controls cost.

• Helps in inventory control.

• Helps in cost reduction

12. Management accounting

Acc to ICMA London management accounting is ,

the application of professional knowledge & skill in the preparation of accounting information in such a manner as to assist management in formation of policies, & in the planning & control of the operations of the undertaking.

13. Nature of management accounting

It helps in future planning.

It is an integral part of management.

It uses certain techniques for making the accounting more useful.

Analyses cause & effect relationship.

It is selective in nature.

14. Scope of management accounting

It includes:

Financial accounting

Cost accounting

Budgeting & forecasting

Reporting

Inventory control

Tax accounting

Internal audit

Performance evaluation of management.

15. Financial vs. management accounting Provide information for decision making. Voluntary as per requirements of the management. Historical & estimates of future. Overall organisation Provide information of the final results. Mandatory As per companies act 1956 & income tax act 1961 historical data. Responsibility centers Objective Legal requirement Time orientation Report entity MA FA Basis 16. Financial vs. management accounting MA FA BasisOnly internal management is interested. Whole world is interested in information. Interested parties Monetary & non monetary information is recorded. Only monetary information is recorded. Type of information. Outsiders do not have access. Outsiders have access. Access to accounts quarterly & annual Varies with purpose, monthly or weekly Report frequency 17. Cost accounting vs management accounting MA CA BasisAll techniques of cost accounting & Funds flow & cash flow analysis, ratio analysis. Standard costing, budgetary control, CVP analysis, inventory control. Techniques used wider Narrow Scope Provides information for managerial decision making. Deals with cost ascertainment, cost allocation & cost control. Purpose 18. Cost accounting vs management accounting MA CA BasisManagement accounting system cannot be installed without cost accounting system. Costaccounting system can be installed without management accounting system. DependencyInformation is derived from financial accounting, cost accounting records & other sources as well.. Information is derived from financial accounting records. Data base Used at higher levels in the organization. Used at middle or lower levels in the organization. Organisational status 19. Objectives of managementaccounting

Helps in planning & formulating policies.

Helps in interpretation process.

Helps in decision making.

Helps in motivating employees.

Helps in organizing.

Coordinating.

Controlling performance.

Reporting.

20. Performa for cost sheet Cost sheet 21. Cost classification

Costs related to Income measurement

Costs related to profit planning.

Cost concepts for control.

Cost concepts for decision making.

22. Costs related to Income measurement

Product costs & period costs.

• Which can be identified with production or purchase of goods. E.g raw material, labour.

• Which vary with passage of time & not production. E.g rent, insurance, salary etc.

Absorbed & unabsorbed costs.

• Which must be absorbed by the revenue of the period in which products are sold & not in the year in which they have been incurred.

Expired & unexpired costs.

• Which cannot contribute to production of future revenues.

• Which can contribute to the revenue in future.

Joint product costs & separable costs.

• Are common costs which are not attributable to different individual products.

• Can be attributable to a particular product.

23. Costs related to profit planning .

Fixed costs, variable costs & mixed costs.

• Remains same e.g. rent , insurance , depreciation etc.

• Changes with output e.g raw material, labour.

• Partly fixed & partly variable e.g. telephone , power.

Future costs & budgeted costs.

• Are expected to be incurred at some future date as a result of current decision. Estimated costs & can be planned.when a plan involving future costs is accepted & a budget is made , it becomes budgeted cost.

24. Cost concepts for control .

Responsibility costs

• Which are identified with the person responsible for their incurrence.

Controllable & non controllable costs.

• Which are influenced by the actions of manager of responsibility centre.

Direct & Indirect costs.

• Which can be identified with a particular department, division or segment.

• which cannot be identified are indirect.

25. Cost concepts for decision making.

Relevant & irrelevant costs.

• Which are influenced by a decision are relevant costs.

Incremental & differential costs.

• Are additional costs caused by a particular decision.

• Arise due to difference in costs between two available , acceptable alternatives.

Out of pocket & sunk costs.

• Which require current/future cash expenses.

• Costs which have already been incurred in the past.

Opportunity & imputed costs.

• Benefits foregone for not choosing the second best alternative.

• Cost of self owned resources.