Best Presentation on cost sheet

7/27/2019 Best Presentation on cost sheet

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Basic Cost Concepts

Objectives

Introduction Meaning of Cost Accounting

Elements of Cost

Classification of Cost

Cost Ascertainment


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Objectives

Prepare Cost Sheet

Identify the Elements of Cost

Make Classification of Cost

Define Cost Ascertainment


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Introduction

Cost Accounting is the classification, recording and

appropriate allocation of expenditure for the

determination of the products or services, and the

suitable presentation of data for the purpose ofcontrol and management.

It normally illustrates the following components of the

cost aspect of the organization for Eg. ProductionAdministration, selling, and distribution.


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Meaning of Cost Accounting

It is the process of classification, recording and

appropriate allocation of expenditure for thedetermination of the products or services through the

presentation of data for the purpose to take decision

and and the suitable presentation of guide the

business organization.


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Difference Between Cost and Management

Accounting

Point of Difference Cost Accounting Managements Accounting

Objectives Determine the cost and

control

To take decisions through

presentation of accounting

information

Scope Deals with only cost andrelated aspects

Deals with cost andrevenue both

Utilization of Data Use quantitative

information pertaining to

transaction

Both qualitative and

quantitative information for

decision making

Nature Deals with past and present

data

Deals with future policy

and course of action

Utility Ends at the presentation of

information

Starts with cost information


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Preparation of Cost Sheet

It is a document that provides of the assembly of an

estimated detail cost in respect of cost center and cost

units.

It may be prepared on the basis of actual data or on

the basis of estimated data.

To find out the unit cost of the product, the statement

of cost place pivotal role in determining the cost of

production, cost of good sold, cost of sales and sellingprice of the product at every stage.


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Classification of Cost

1) Direct Cost Classification

>> Direct Material

>> Direct Labour

>> Direct ExpensesDirect Materials + Direct Labor + Direct Expenses = Prime cost

2) Indirect Cost Classification

>> Factory Overhead

>> Work Overhead

Factory cost = Prime cost + Factory overhead


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Direct Material

Direct: traceable to one particular process, job or productidentified with each unit of product

Example: manufacturing an apparel

Cloth, collar, buttons, cufflinks, thread Primary packing material (e.g., carton, wrapping,

cardboard, boxes, etc.)

Fuel, lubricating oil etc for operating & maintenance ofmachine

Small tools

Materials used for repairs & maintenance


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Direct Labour

Inspectors

Supervisors

Internal transport staff Storekeeper, maintenance staff


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Direct Expense

Expenses leading to a job or contract

Traveling expenses for negotiation

Special pattern, design

Special tools for executing the contract

Rent

Insurance

Canteen, hospital, power , lighting, maintenance


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Indirect Cost ClassificationManufacturing Overhead (OH)

All of costs of manufacturing excluding direct materials anddirect labor

a. Indirect Materials (IM) Materials, used in themanufacturing of products, which are difficult to trace toparticular products in an economical way

Glue, nails, cleaning supplies

b. Indirect Labor (IL)Labor, used in the manufacturing ofproducts, which is difficult to trace to particular products in aneconomical way

Wages for maintenance workers, factory supervisorssalary, idle time

c. All other types of manufacturing overhead

Depreciation on machinery, depreciation on factory

building, factory insurance, utilities for factory


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Stock of Raw Material

Particulars Amount

Opening Stock of raw Material XXXXX

(+) Purchases of Raw Material XXXXX

XXXXX

(-) Closing stock of Raw Material XXXXX

Cost of Material Consumed XXXXX


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Stock of Semi Finished goods

Particulars Amount

Prime Cost XXXXX

(+) Factory Overhead XXXXX

(+) Opening work in progress XXXXX

(-) Closing work in progress XXXXX

Factory Cost / Cost of production XXXXX


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Stock of Finished goods

Particulars Amount

Cost of Production XXXXX

(+) Opening stock of finished goods XXXXX

(-) Closing stock of finished goods XXXXX

Cost of goods sold XXXXX

(+) Selling overheads XXXXX

Cost of Sales XXXXX


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Elements of Costa) Material

b) Labour

c) Expenses

d) Overheads


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Classification of cost1) General Classification

Product v/s period Cost

Direct v/s Indirect Cost

Manufacturing v/s non manufacturing cost

2) Technical Classification

By function

By Variability

By controllability By normality

By time

For Planning and control

For managerial decision


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PRODUCT COSTS AND PERIOD COSTS

Product cost is that cost which is regarded as asset when

incurred, but becomes a part of cost of goods sold whenthe product is sold. For MUL, all manufacturing cost isProduct cost. (Raw material to WIP to Finished goods)For a service sector unit, absence of inventory means allare period costs.

Period costs (non-product cost): all costs in P&L accountexcept cost of goods sold. So, in a mfg. sector unit, allnon-manufacturing costs are period costs. (Ex.Distribution cost, design cost, R&D costs, Marketing

costs, customer-service costs, etc.)


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Normality

Normal Cost Abnormal Cost

Variability

Fixed Cost

Variable Cost

Semi Variable Cost


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Controllability

Controllable Cost Uncontrollable Cost

Time

Historical Cost

Pre determined Cost


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For Planning an Control

Standard Cost Budget Cost

For Managerial Decision

Marginal Cost

Sunk Cost


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Cost Ascertainment

Product Centre Service Centre

Profit Centre


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Classifying Costs for Financial Statements

Matching Concept: The costsincurred to generate

particular revenue should berecognized as expenses inthe same period that therevenue is recognized.

Period costs: Those coststhat are matched againstrevenues on a time period

basis

Product costs:Those coststhat are matched againstrevenues on a product basis.


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Ice cream (cream, sugar, milk, and milk solids) $0.65

Cone 0.05

Rent 0.61

Wages 0.25

Payroll taxes 0.25Sales taxes 0.23

Business taxes 0.08

Debt service 0.23

Supplies 0.09

Utilities 0.08

Other (insurance, advertising,professional fees) 0.05Profit 0.13

$2.50

Unit Price of an Ice Cream

Classifying Costs for Uptown Ice Cream Shop

Product

Cost

Period

Cost


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Cost Flows and Classifications in a Mfg. Co.

Cost ofrevenue = Costof goods sold

Raw materialsinventory

Work-in-process

inventory Finished goods

inventory


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Cost Classification for Predicting Cost

Behavior Volume index

Cost Behaviors

Fixed costsVariable costs

Mixed costs

Average unit costs


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Volume Index

Def: The unit measureused to definevolume

Examples: Automobilemiles

driven

Generating plant

kWh produced Stamping machine

parts stamped


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Fixed Costs

Def: The costs of

providing a companys

basic operatingcapacity

Cost behavior: Remain

constant over the

relevant range


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Variable Costs

Def: Costs that vary

depending on the level

of production or sales Cost behavior:

Increase or decrease

proportionally

according to the levelof volume


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Average Unit Cost

Def: activity cost per

unit basis

Cost Behaviors: Fixed cost per unit

varies with changes in

volume.

Variable cost per unitof volume is a

constant.


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Differential (Incremental) Costs

Def: Costs that

represent the

differences in totalcosts, which results

from selecting one

alternative instead of

other


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Opportunity Costs

Def: The potential benefit

that is given up as you

seek an alternative course

of action

Example: When you

decide to pursue a college

degree, your opportunity

cost would include the 4-years potential earnings

foregone.


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Sunk Costs

Def:Cost that has already

been incurred by past

actions

Economic Implications:

Not relevant to future

decisions

Example: $500 spent to

replace tires last yearnotrelevant in making selling

decision in the future


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Marginal Costs

Def: Added costs that

result from increasing

rates of outputs,usually by single unit

Example: Cost of

electricity

decreasing marginalrate

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Best Presentation on cost sheet