Cost Accounting introduction, Study notes of Accounting

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Cost Accounting (Detailed)

With Examples & Diagrams

Meaning of Cost Accounting

It is the process of recording, classifying and analyzing costs to control and reduce them.

Cost Classification

(Diagram)

Total Cost / Fixed Cost Variable Cost Direct Cost Indirect Cost

Example of Cost

For making a chair:

• (^) Wood = Direct Cost
• (^) Labour = Direct Cost
• (^) Electricity = Indirect Cost
• Rent = Fixed Cost

Costing Methods

• Job Costing
• (^) • Process Costing
• (^) • Batch Costing
• (^) • Activity-Based Costing

Cost Sheet (Diagram)

Prime Cost = Direct Material + Direct Labour Works Cost = Prime Cost + Factory Expenses Total Cost = Works Cost + Office Expenses

Advantages

• Helps in cost control
• (^) • Improves efficiency
• (^) • Better planning
• (^) • Decision making

Limitations

• Expensive system
• (^) • Time consuming
• (^) • Requires skilled staff