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Introduction to Cost Accounting
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Definition of Cost Accounting
“Cost Accounting is the methods or techniques for determining cost of a product , a process or a service or things”It is determined by –Direct MeasurementSystematic & Rational allocation
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Unit Costing Batch Costing Job Costing Operation Costing Contract Costing Process Costing Multiple Costing
Methods of Cost Accounting
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• Uniform Costing• Marginal Costing• Standard Costing• Historical Costing• Direct Costing• Absorption Costing
Techniques of Cost Accounting
1.Basis of manufacturing- >Direct Material >Direct Labor
>Factory Overhead2.Basis of non manufacturing cost-
>Marketing & selling cost >Administrative cost
3.Relation of product- >Product cost >Period cost 6
Classification of Cost Accounting
4.Basis of cost behavior->Variable cost>Fixed cost>Sami-fixed cost
5.Basis of traceability->Direct cost>Indirect cost
6.Basis of normalcy->Normal cost>Abnormal cost
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Classification of Cost Accounting
7.Basis of decision making->Opportunity cost>Sunk cost>Relevant cost>Out of pocket cost>Imputed cost>Shutdown cost
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Classification of Cost Accounting
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Costing for Materials
• Direct Materials :- That materials can be physically identified with and allocated to cost unit.
• Indirect Materials:- That materials can’t be physically identified with individual cost unit.
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Direct & Indirect Materials
1. Raising a purchase requisition2. Placing an order3. Receiving the goods4. Inspecting the goods5. Taking the goods into stores & entering
items on Bin card6. Issuing goods to production or shop7. Maintaining a stores ledger card
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Materials Control Cycle
• Perpetual Inventory System:-It updates inventory accounts after each purchase or sale. Inventory subsidiary ledger is updated after each transaction.
• Periodic Inventory System:-Periodic inventory is a system of inventory in which updates are made on a periodic basis. This differs from perpetual inventory systems, where updates are made as seen fit.
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Materials Inventory System
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Costing for Labor
“Labor Costing is the cost of labor is the sum of all wages paid to employees, as well as the cost of employee benefits and payroll taxes paid by an employer”.
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Definition of Labor costing
Incentive wage plans are extra wages in the form of monetary and non-monetary ways for increasing the efficiency of employees and workers. It is also known as bonus to workers. In an successful incentive plan has must - -When output is increased. -Provide proportionately more pay. -Result in immediate reward for every pay day
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Incentive wages loan
• Idle time is the time for which employees are paid but from which the employer gains no output.• Idle time may be of under mentioned types:
1-Normal idle time2-Abnormal idle time
• There are three cause of “Idle Time” :1-Productive cause2-Administrative cause3-Economic Cause
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Idle Time
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OverheadCosting
• Overhead expenses are all costs on the income statement except for direct labor, direct materials, and direct expenses.
• Overhead expenses include advertising cost, insurance, interest, legal fees, labor burden, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities.
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Definition of Overhead Costing
1-Basis of Function:-Manufacturing/Production overhead-Administration overhead-Marketing/Selling overhead
2-Basis of Behavioral:-Variable overhead-Fixed overhead-Semi variable overhead
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Types of Overhead Costing
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JobCosting
Job costing involves the calculation of costs involved in a construction "job" or the manufacturing of goods done in discrete batches.
There are three types –-Factory job costing-Batch costing-Contract costing
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Definition of Job Costing
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Features of Job Costing
1.Jobs are ascertained against the order of customers.
2.Production is not meant for stock or future sale.
3.Production not a continuous process.4.Different degrees of attention & skills are
required for different jobs.5.Separate cost sheet for each job .
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ProcessCosting
Process costing is a term used in cost accounting to describe one method for collecting and assigning manufacturing costs to the units produced.Processing cost is used when nearly identical units are mass produced.
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Definition of Process Costing
• A cost of production report is applied to accumulate, summarize, and calculate total and unit costs.
• Costs are captured to departmental work-in-process accounts.
• Production is accumulated and reported by departments.
• Production in process at the completion of a period is restated in terms of completed units.
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Characteristics of Process Costing
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