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all the cost concept that would be helpful for all
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By Asst. Prof. Deepak Patil
Internal Marks Distribution100 Marks
Internals (40 Marks) External (60
Marks)3 Periodical Class Test
Best of 2 will be selected
Submission of Assignment and
Presentation
Attendance and Active Participation
Some Classroom Rules1. Students are free to join class at anytime during
the lecture but make sure you don’t disturb the class. Occupied nearest seat available immediately
2. Students are expected to carry below mentioned things
a. Class Problem Sheetb. Own Calculator (Mobile calculator is not allowed)c. Full size (A4 size) Note book.d. Ruler + Pencil
3. Internal Test will be conducted at 4th 8th and 12th
sessions. Short notice will be given on the same
Some Classroom Rules4. Students are expected to create a separate full
size note book (not more than 50 pages for writing Assignment) Assignment submitted on loose pages will not be accepted
5. Assignment should be submitted on next session in which assignment was given. (or no marks will be alloted)
6. Presentation Group should be have more than 5 members. (presentation guideline will be share soon)
7. All Class Representative should share their email id with me at [email protected] (students concern should be directed through CR.)
Session PlanSr. No.
Particulars No Sessions
1. Introduction to Cost and Management Accounting
1
2. Preparation of Cost Sheet 23. Job Costing 14. Process Costing 15. Service Costing 16. Marginal Costing / CVP Analysis 27. Budgeting 28. Managerial Decision Problem 19. Responsibility Accounting (Case Study) 110. Presentation 211. Management Games 1
Total 15
Topics and Hints for Presentation Topic1. The Goal Book Review Novel by Eliyahu M.
Goldratt and Jeff Cox 2. Valuation of Bulk production (like Switch, Fan
etc )3. Estimating price of Furniture, Printing Visiting
card etc.4. Fixing price of Hotel Room5. How to reduce cost of City Bus (like BEST,
NMMT, KDMC. TTC)6. Fixing price Bakery product7. Estimating price of product that goes from more
than 1 process.
Topics and Hints for Presentation Topic8. Target Costing
Class 1
Learning ObjectivesCost Methods & Cost Techniques
Costing Systems/Methods
Cost Classification
Cost Sheet
Cost Methods & Cost TechniquesCost Methods1. Job Costing2. Contract3. Batch4.Process( continuous)5. Service( Operating)
Cost Techniques1. CVP Analysis2. Budgetary Control
Costing Systems/Methods
Historical AbsorptionDirectMarginalStandardUniform
COST CLASSIFICATION Elements Behaviour Functions Normality Control Decision Making
ElementsMATERIAL
LABOUR
EXPENSES
MATERIAL
Direct: traceable to one particular process, job or product – identified 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 of machine
Small toolsMaterials used for repairs & maintenance
LABOUR
InspectorsSupervisorsInternal transport staffStorekeeper, maintenance staff
EXPENSES
Expenses leading to a job or contractTraveling expenses for negotiationSpecial pattern, designSpecial tools for executing the contract
RentInsuranceCanteen, hospital, power , lighting,
maintenance
BehaviourFixed in short run & long run
VariableVaries with volume and constant per unit
Semi-variableA cost could be variable for one level of activity whereas it couldbe fixed for another.
Not inherently fixed or variableMany costs are semi-variable in nature
Fixed Cost
Committed Fixed Costs consists largely of those fixed costs that arise from the possession of plant, equipment and a basic organizational structure. For example, once a building is constructed and plant is installed, nothing much can be done to reduce the costs such as depreciation, property taxes, insurance and salaries of the key personnel, etc., without impairing the organization's competence to meet the long-term goals.
Discretionary Fixed Costs : set at fixed amount, for specific time periods by the management, in the budgeting process. These costs directly reflect top management policies and have no particular relationship with volume of output. These costs can therefore be reduced or eliminated entirely, if the circumstances so require. Examples of such costs are: research and development costs, advertising and sales promotion costs, donations, management consulting fees, etc. these costs are also termed as managed or programmed costs.
FunctionsProduction CostAdministration CostSelling CostDistribution Cost
NormalityNormalAbnormal
ControlControllable &Uncontrollable
Planning & ControlBudgeted Cost: estimate of expenditure for
different business operations
Standard Cost: for prescribed set of operating conditions, labour, material and overheads are predetermined; budget translated into actual operation through standard costs
Decision MakingMarginal vs. Absorption Costing
(with fixed cost and without FC)Sunk - irrelevantCommitted – pre committedOpportunity Incremental / DifferentialAvoidable & Unavoidablecontrollable / uncontrollable
RelevanceRelevantIrrelevant
Cont…..
Irrelevant cost: not relevant for decision making
Example: Sunk costs: Sunk cost is the cost of abandoned plant less salvage value. Not relevant for decision making.
Imputed (Notional cost): Actually not incurred (interest on own capital, rent on owned building, etc.) Taken into account in capital budgeting decisions.
Replacement cost: Cost of replacing at current market price.
Cont…..
Avoidable and unavoidable cost: Cost that can be avoided by eliminating a product or department is avoidable and that which cannot be, is unavoidable.
Ex. – Rent of factory is unavoidable if a product is discontinued.
Other costs:
Future costs: cost to be incurred in futureProgrammed cost: Cost incurred as per policy of
top management. Ex.- Donation to charity.Joint cost: cost of joint or by-products incurred
before separation, which cannot be traced to particular products.
Conversion cost: cost of converting raw material to finished goods = Production cost- direct material.
Discretionary cost: not essential for decision on hand. Ex.- Training expenses of workers, R&D cost.
Committed cost: Costs incurred due to past decisions and are not within control in the short run at present. Ex.- Depreciation on Plant, Rent, etc.
INVENTORIABLE COSTS AND PERIOD COSTS
Inventoriable cost/ product cost is that cost which is regarded as asset when incurred, but becomes a part of cost of goods sold when the product is sold. For MUL, all manufacturing cost is inventoriable cost. (Raw material to WIP to Finished goods) For a service sector unit, absence of inventory means all are period costs.
Period costs (non-product cost): all costs in P&L account except cost of goods sold. So, in a mfg. sector unit, all non-manufacturing costs are period costs. (Ex. Distribution cost, design cost, R&D costs, Marketing costs, customer-service costs, etc.)
Cost Accounting vs Management Accounting Cost Accounting Management Accounting
Concerned with ascertainment, allocation & distribution of cost
Concerned with impact and effect aspect of cost
Cost accounting data serves as a base for management accounting
Management accounting data derived from cost accounting
Primary emphasis of cost accounting is to deal with collection, analysis and presentation problems to management
Main focus on formulating corporate planning, policies and strategies
It does not include financial and tax accounting
It includes both financial and tax accounting
Cost Accounting vs Management Accounting Cost Accounting Management Accounting
Cost accounting system can be installed without management accounting
Management accounting system can not installed without cost accounting
It is concerned with money as a measure of economic performance
It looks at non monetary economic events from management view
More concerned with short term planning
Concerned with short as well as long range planning. Evaluating project is specialty of management accounting
Cost Accounting vs Financial Accounting Cost Accounting Financial Accounting
Internal reporting system to own management for decision making
Reporting other than management like government, creditors, investors etc
More concerned with short term planning and reporting period is lesser than financial accounting
Period of reporting is much wider
Deals with historic data with futuristic approach
Data is historical in nature
Cost accounting system can not install without proper financial accounting system
Financial accounting system can be installed without proper cost system
Cost Accounting vs Financial Accounting
Cost Accounting Financial Accounting
Uses both monetary and non monetary information
Uses only monetary information
Provides detailed system of cost control with help of standards and budgets
Emphasize only on recording of transaction and presentation of data in form of financial statements
Each organization can develop its own costing system
Established concepts, principles and accounting standards
Cost Sheet
Production process of Gear Manufacturing
Cost Sheet for the period ………………(production/unit)