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COST ACCOUNTING
Meaning : Cost Accounting is the classifying , recording
and appropriate allocation of expenditure for
the determination of the costs of products or
services, and for the presentation of suitably
arranged data for the purposes of control and guidance
of management.
Features
It is a process of accounting for costs
It records income and expenditure relating to production of
goods and services
It provides statistical data on the basis of which future
estimates are prepared and quotations are submitted
It is concerned with cost ascertainment, cost control and
cost reduction
It establishes budgets and standards so that actual cost
may be compared to find out deviations or variances
It involves the preparation of right information to the right
person at the right time so that it may be helpful to
management for planning, evaluation of performance,
control and decision making
Element of cost Materials Labour Other Expenses Direct Indirect Direct Indirect Direct^ Indirect Overhead s Production or Works overhead Administration overheads Selling overheads Distribution overheads
By grouping the above element of costs the following divisions of costs are obtained:- PRIME COST: Direct materials+ Direct Labour+ Direct Expenses WORK or FACTORY COST : Prime Cost + Work or Factory Overheads COST OF PRODUCTION Work cost + Administrative Overheads TOTAL COST or COST OF SALES Cost of Production + Selling and Distribution Expenses
- (^) Classification on the basis of
Element
Material Cost Labour Cost
Expenses
- Classification on the basis of
Nature
Direct Cost (^) Indirect Cost
- Classification on the basis of Variability or
Behaviour
Variable Cost Fixed Cost
Semi Variable
Or
Semi Fixed cost
- Classification on the basis of Controllability
Controllable cost Uncontrollable cost
- Classification on the basis of Relevance to Decision Making
& Control
Marginal Cost Sunk Cost Opportunity CostImputed CostDifferential cost
Shut Down Cost Postponable cost Replacement Cost
Abandonment Cost Out of Pocket Cost
COST SHEET The calculation of cost of production at various stages can be shown by means of a statement called cost sheet Cost sheet is an analytical presentation of the cost of the product in the form of a statement and shows the various elements and components of cost
VALUATION OF INVENTORIES
The value of materials has a direct bearing on the
income of a concern, so it is necessary that a
method of pricing materials should be such that it
gives a realistic value of stocks. Different methods
can be used for the purpose of valuation of
inventories. The actual method to be adopted in a
manufacturing concern shall depend upon the
nature of materials and the nature of the
business itself.
Different methods that can be used for valuation of
inventories are as follows:
Cost price method First –in-First- out Method or FIFO Method Last –in-First- out Method or LIFO Method Highest –in-First- out Method or HIFO Method Next–in-First- out Method Or NIFO Method
4. Fixed Price Method or Standard Price Method
5. Inflated Price Method
6. Base Stock Method
Selection Of A Proper Method Of Valuation
The selection will be made by taking into account a number of
factors which
May be given as follows:
The nature of production – whether intermittent or continuous.
Volume/ Frequency of receipts of materials.
Variations and fluctuations in prices and their nature
Frequency of issue of material
Stock turnover rate.
Effect of pricing method on tax payable.
Clerical labour involved in the method.
Traceability of the issue to the particular lot or consignment.
Nature of the cost accounting system followed.
