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Advanced
Cost Accounting
Advanced
Cost Accounting
Dr. K. Senthilkumar M.Com., MBA., M.Phil., Ph.D.
Faculty of Commerce,
Laxminaray na Arts & Science College for Women,
Dharmapuri, Tamilnadu
Dr. K. Maruthamuthu M.Com., M.Phil., Ph.D.
Senior Professor in Commerce,
Periyar University,
Salem-11
Dr. Desti Kannaiah Faculty of School of Business
James Cook University,
Singapore
� Vll<AS3
Vikas(K) Publishing House Pvt Ltd
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Information contained in this book has been published by VIKAS''' Publishing House Pvt Ltd and has been obtained by its Authors from sources believed to be reliable and are correct to the best of their knowledge. However, the Publisher and its Authors shall in no event be liable for any errors. omissions or damages arising out of use of this information and specifically disclaim any implied warranties or merchantability or fitness for any particular use. Disputes if any are subject to Delhi Jurisdiction only.
Printed in India at
B.B. Press
Noida
This book is dedicated
TO OUR PARENTS
Authors
We are happy to bring out the first edition of this book on 'Advanced Cost Accounting' as needed for the UG and PG level students. All the chapters of this book have been thoroughly packed with advanced problems and up-to-date theory. The book has been divided into five chapters to fully cover the syllabus of B.Com, B.Com (CA), B. Com (FA), BBA, BBA (CA),
M.Com, M.Com (CA) students. This book presents the subject in a simple, clear and systematic manner. The book meets all requirements of Periyar, Thiruvalluvar, Madras and various other Indian Universities' syllabi. Several new problems have been taken from the latest examination questions and incorporated as illustrations or practical problems in the chapters. Short answer and long answer type of questions have also been added.
We are thankful to the professors of Periyar University for their input and Vikas Publishing House for the untiring efforts to publish the book in time with a new style and attractive format for the students. We are deeply indebted to all our students and friends who have helped us to bring out this book.
Further suggestions for improvements are welcome from professors as well as students.
Dr. K. Senthilkumar
Dr. K. Maruthamuthu
Dr. Dest Kannaiah
Preface vii
CHAPTER 1 Introduction of Cost Accounting
Introduction
Cost Accounting
Objectives of Cost Accounting
Advantages of cost accounting Distinction between Financial Accounting and Cost Accounting
Distinction between Cost Accounting and Management Accounting
Functions of Cost Accounting
Methods of Costing
Types of Costing
Elements of Cost
Classification of Costs
Cost Sheet
Specimen of Simple Cost Sheet (or) Statement of Cost
Illustrations
Theory Questions
Exercises
CHAPTER 2 Materials
1 1 2 2 4 5 6 6 8 8
10 15 15 19 50 52
Material Control 59
Introduction
Essentials and Objectives of Material Control
Advantages of Material Control
Techniques of Inventory Material Control
Determination of Various Levels of Materials
Economic order Quantity (EOQ)
Need for Economic Order Quantity (EOQ) ABC Analysis
A'.dvantages of ABC Analysis
Purchase Control
A SpeCimen Purchase Requisition Form
The Purchase Order Form (POF) A Specimen Purchase Order Form
The Goods Receiving Department
A Specimen Goods Received Note The Accounts Department
59 59 60 60 60 62 64 65 65 65 67 67 68 68 69 69
x Contents
Materials planning and control
Documents for Material Planning and Control
Material Requisition
Materials Return Note (MRN) Bin Card (BC)
A Specimen Bin Card
Advantages and disadvantages of using Bin cards
Stores Ledger Card (SLC)
Differences between Bin Card and Store Ledger
Methods of Pricing Material Issues
Illustrations
Theory Questions
Exercises
CHAPTER 3 Labour
70 70 7 1 7 1 72 72 72 73 73 73 78
134 135
Labour Cost 14 7 Types of Labour 14 7 Important Factors for Controlling Labour Cost
Labour turnover
Methods of Labour Turnover
Causes of Labour Turnover
Department of Engineering and Work Study
Work Measurement
Purpose ofWork Measurement
Uses of Work Measurement
Techniques of work measurement
Job Analysis
Key Factors in Job Analysis
Advantages of Job Analysis
Disadvantages of Job Analysis
Methods of Time Keeping
Idle Time
Types of idle Time
Wage payment
Advantages of time wage system
Advantages of piece wage system
Disadvantages of piece wage system
Remuneration And Incentives
Methods of Remuneration
Advantages of Piece Rate System
Disadvantages of Piece Rate System
Incentive Plans (Bonus or Premium Schemes)
Types of Incentives
Illustrations
148 148 148 149 150 150 151 1 5 1 151 154 154 155 156 157 158 158 159 159 160 161 1 6 1 162 165 166 167 169 170
Contents xi
Methods Of Remuneraton And Incentive Systems 178 Theory Questions 209 Exercise 210
CHAPTER 4 Overheads
Meaning and Definition of Overhead
Classification of overhead Costs
Departmentalisation of overheads
Advantages of departmentalizing manufacturing overhead costs
Allocated and Apportionment of Overheads
Guidelines of Apportionment
Primary Distribution of Overheads
Principles of Apportionment of Overhead Costs
Bases for Apportionment
Secondary Distribution of Overheads
Absorption of Overhead
Methods of absorption of Overheads
Administrative Overhead
Methods to treat Administrative overhead
Selling and Distribution Overheads
Features of Selling & Distribution Overhead
Absorption of Selling & distribution overhead
Primary Apportionment of Overhead Expenses
Trial and Error Method
Absorption of Overhead
Direct Wages Percentage Method Direct Wages Percentage Method
Prime Cost Percentage Method
Rate Per Unit of Production Method
Labour hour rate method
Machine Hour Rate Method
Computation of Two or More Rates
Computation Of Machine Hour Rate
Theory Questions
Exercises
Secondary Distribution Overhead
Step Distribution Method
Repeated Distribution Me.thod
Absorption of Overhead
CHAPTER 5 Process Costing
Meaning and Definition of Process Costing Characteristics I Features of Process Costing Importance o�process costing Process Loss
217 217 220 22 1 22 1 222 223 223 224 224 225 226 228 228 228 229 230 230 254 259 260 262 264 265 266 267 270 274 275 277 278 280 282
287 287 288 289
xii Contents
Inter-:Process Profit
Joint Products and By-Products
By-Products
Abnormal Loss And Gain
Joint Products And By- Products
By Product Only
Theory Questions
Exercises
290 290 292 313 318 324 329 330
