CMA 102 Cost Accounting Class Note Jan Jun 2011 Page 01 to 16

The Institute of Cost and Management Accountants of Bangladesh Course Teacher:

Md.Monowar Hossain MBA,ACMA, ACS,

Deputy General Manager

Finance Division,

Dhaka Stock Exchange Ltd.

Class note for

Professional Level –I

102 – Cost Accounting

1 Md.Monowar Hossain ACMA, ACS

Dy. General Manager

Finance Division


Cost Accouting

Course Teacher:



Finance Division,

Dhaka Stock Exchange (DSE),

9/F Motijheel C/A, Dhaka - 1000, Bangladesh.

Email: [email protected]

[email protected]

[email protected]




Finance Division,


Class note for




Dy. General Manager

Finance Division


Subject Code :COA 102 COST ACCOUNTING


102.Cost Accounting---100

Course Objectives : To provide the students with an in-depth knowledge of Cost Accounting concepts,

principles and methods to develop ability and skills to prepare and analyses Cost Accounting data to meet the

requirements of different manufacturing concerns. On completion of this course they will be able to:

a. discuss the role of cost accounting and quantitative analysis within the organization.

b. apply the principles relating to the costing and control of the different resource inputs into the business.

c. emonstrate costing methods and techniques appropriate to a variety of different business.

102.01 Introduction to Cost Accounting

Definition of Cost Accounting, Comparison of Cost Accounting and Financial Accounting; The role of Cost

Accounting; Cost Data for Management Purposes; Methods and Techniques of Cost Accounting;

Characteristics of an Ideal Cost Accounting System; Installation of a Cost Accounting System; Modern Trends in

Cost Accounting.

102.02 Cost Concepts, Classifications and Statements

Cost Object; Expenditures, Cost, Expense and Loss; Cost Classifications; Cost Data and Uses; The Chart of

Accounts; Statement of Cost of Goods Manufactured and Sold; Income Statement.

102.03 Costing and Control of Materials

Classification of Materials; Accounting for Materials; Pricing the Issue of Materials Valuation of Inventory;

Periodic Inventory System and Perpetual Inventory System; Inventory Planning; Ordering Cost, Holding Cost

and EOQ; Effect of Quantity Discounts on EOQ; Safety Stock and Reorder Point; Material Control Methods;

Impact of JIT on Inventory Accounting; Materials Requirement Planning System.

102.04 Costing and Control of Labour

Productivity and Labour Costs; Costs included in Labour; Accounting for Labour; Time Keeping, Computation of

total payroll and Allocation of Payroll costs; Journalizing Labour Costs; Special Problems Relating to Accounting

for Labour; Labour cost Control, Labour Turnover and Control of Labour Turnover; Learning Curve Theory.

102.05 Costing and Control of Manufacturing Overhead

Manufacturing Overhead Costs; Actual Vs. Normal Costing of Manufacturing Overhead; Production Capacity,

Predetermined Overhead Rates; Departmental vs. Plant-wise Overhead Rates; Separating Mixed Costs.

Scatter-graph; High-low Method and Regression Analysis; Accounting for Manufacturing Overhead; Analysis

and Disposition of Under-applied-and Over-applied Overhead.




Finance Division,


Class note for




Dy. General Manager

Finance Division


102.06 Service Department Costs Allocation

Service department costs; Volume based costing; Need for cost allocation; Guidelines for cost allocation;

Plant-wise rate vs. departmental rates; Cost allocation methods; Direct method; Step method; Reciprocal

method and linear algebra method; Single and dual rate methods; Determination of costs should be allocated-

budgeted or actual.

102.07 Activity-Based Costing (ABC)

The Contemporary Manufacturing Environment; Limitation of Traditional Costing Systems; ABC Defined;

Identifying Activities that Use Resources; Cost Drivers and Choosing Cost Drivers; Assigning Costs Using

Activity-Based Costing-Benefits of ABC; Criticism of ABC; ABC and strategic Cost Management.

102.08 Cost Accumulation System

Objective of Cost Accumulation; Cost Accumulation Periodic vs. Perpetual; Cost Accumulation-Actual vs.

Standard; Periodic an Perpetual Cost Accounting System; The Factory Ledger.

102.09 Job Order Cost System

Job Order Costing; Job Order Cost System-Illustrated; Spoiled Goods; Defective Goods; Scrap materials and

Waste Materials in a Job order Cost System.

102.10 The Nature and Characteristics of process Cost System

Process Costing Defined; Objective of Process Cost System; Characteristics of a Process Cost System;

Comparison of Job Order and Process Cost Accumulation System; Production by Department; System Flow;

Determination of Equivalent Units; The Cost of Production Report.

Tex Books

1. Cost Accounting – Ralph S. Polimeni, Frank Fabozzi and Arthur H. Adelherg (3rd

edition).

2. Cost Accounting – F. Usry & H. Hammer (13th

edition).

Reference Books

1. Cost Accounting L. Gayle Rayburn (6th

edition).

2. Cost Management – Blocher, Chen & Lin (1st

edition).

3. Cost Accounting – C. T. Horngren & Others (11th

edition).




Finance Division,


Class note for




Dy. General Manager

Finance Division


Subject Code :COA 102 COST ACCOUNTING

(ONE PAPER - 3 HOURS - 100 MARKS)

Professional Level –I Class Plan

No.

Class Course Contents

1 Introduction and describe career plan with long vision

2

102.01

Introduction to

Cost Accounting

-Definition of Cost Accounting,

-Comparison of Cost Accounting and Financial Accounting;

-The role of Cost Accounting;

-Cost Data for Management Purposes;

-Methods and Techniques of Cost Accounting;

-Characteristics of an Ideal Cost Accounting System;

-Installation of a Cost Accounting System;

-Modern Trends in Cost Accounting.

3

102.02

Cost Concepts,

Classifications and

Statements

-Cost Object;

-Expenditures,

-Cost,

-Expense and Loss;

-Cost Classifications;

-Cost Data and Uses;

-The Chart of Accounts;

-Statement of Cost of Goods Manufactured and Sold;

-Income Statement.

4 & 5

102.03

Costing and

Control of

Materials

-Classification of Materials;

-Accounting for Materials;

-Pricing the Issue of Materials Valuation of Inventory;

-Periodic Inventory System and Perpetual Inventory System;

-Inventory Planning;

-Ordering Cost,

-Holding Cost and EOQ;

-Effect of Quantity Discounts on EOQ;

-Safety Stock and Reorder Point;

-Material Control Methods;

-Impact of JIT on Inventory Accounting;

-Materials Requirement Planning System.




Finance Division,


Class note for




Dy. General Manager

Finance Division


6, 7 & 8

102.04

Costing and

Control of Labour

-Productivity and Labour Costs;

-Costs included in Labour;

-Accounting for Labour;

-Time Keeping,

-Computation of total payroll and Allocation of Payroll costs;

-Journalizing Labour Costs;

-Special Problems Relating to Accounting for Labour;

-Labour cost Control,

-Labour Turnover and Control of Labour Turnover;

-Learning Curve Theory.

9, 10 &

11

102.05

Costing and

Control of

Manufacturing

Overhead

-Manufacturing Overhead Costs;

-Actual Vs. Normal Costing of Manufacturing Overhead;

-Production Capacity,

-Predetermined Overhead Rates;

-Departmental vs. Plant-wise Overhead Rates;

-Separating Mixed Costs.

-Scatter-graph;

-High-low Method and Regression Analysis;

-Accounting for Manufacturing Overhead;

-Analysis and Disposition of Under-applied-and Over-applied Overhead.

12,13 &

14

102.06

Service

Department Costs

Allocation

-Service department costs;

-Volume based costing;

-Need for cost allocation;

-Guidelines for cost allocation;

-Plant-wise rate vs. departmental rates;

-Cost allocation methods;

-Direct method;

-Step method;

-Reciprocal method and linear algebra method;

-Single and dual rate methods;

-Determination of costs should be allocated-budgeted or actual.

15,16&

17

102.07

Activity-Based

Costing (ABC)

-The Contemporary Manufacturing Environment;

-Limitation of Traditional Costing Systems;

-ABC Defined;

-Identifying Activities that Use Resources;

-Cost Drivers and Choosing Cost Drivers;

-Assigning Costs Using Activity-Based Costing-Benefits of ABC;

-Criticism of ABC;

-ABC and strategic Cost Management.




Finance Division,


Class note for




Dy. General Manager

Finance Division


18,19&

20

102.08

Cost Accumulation

System

-Objective of Cost Accumulation;

-Cost Accumulation Periodic vs. Perpetual;

-Cost Accumulation-Actual vs. Standard;

-Periodic an Perpetual Cost Accounting System;

-The Factory Ledger.

21,22 &

23

102.09

Job Order Cost

System

-Job Order Costing;

-Job Order Cost System-Illustrated;

-Spoiled Goods;

-Defective Goods;

-Scrap materials and Waste Materials in a Job order Cost System.

24,25,26

& 27

102.10

The Nature and

Characteristics of

process Cost

System

-Process Costing Defined;

-Objective of Process Cost System;

-Characteristics of a Process Cost System;

-Comparison of Job Order and Process Cost Accumulation System;

-Production by Department;

-System Flow;

-Determination of Equivalent Units;

-The Cost of Production Report.

28 Review Class

29 Class Test

30 Class Test

Class -1

Introduction and describe career plan with long vision ………………………………….

Cost accounting is a quantitative method that accumulates, classifies, summarizes and interprets

information for the following three major purposes:

� Operational planning and control

� Special decisions

� Product decisions




Finance Division,


Class note for




Dy. General Manager

Finance Division


CMA

Professional Level –I 102: Cost Accounting

Class

No. 2

102.01

Introduction to

Cost Accounting

-Definition of Cost Accounting,

-Comparison of Cost Accounting and Financial Accounting;

-The role of Cost Accounting;

-Cost Data for Management Purposes;

-Methods and Techniques of Cost Accounting;

-Characteristics of an Ideal Cost Accounting System;

-Installation of a Cost Accounting System;

-Modern Trends in Cost Accounting.

� Definition of Cost Accounting:

� The process of identifying and evaluating production costs.

� System for recording and reporting measurements of the cost of manufacturing goods and performing

services in the aggregate and in detail. It includes methods for reorganizing, classifying, allocating,

aggregating, and reporting actual costs and comparing them with standard costs. Determination of

unit cost to make a product or render a service is needed to establish a selling price or fee to be

charged. Also, costs for manufacturing a product for inventory valuation need to be known to prepare

the balance sheet and income statement. Cost accounting systems include job order, process,

standard, and direct costing.

� Branch of accounting concerned with providing the information that enables the management of a

firm to evaluate production costs.

Objectives of Cost Accounting

1. Cost Ascertainment

2. Determining Selling Price

3. Cost Control

4. Cost Reduction

5. Determining and Controlling Efficiency

6. Facilitating Preparation of Financial and Other Statements

7. Providing Basis for Operating Policy




Finance Division,


Class note for




Dy. General Manager

Finance Division





Finance Division,


Class note for




Dy. General Manager

Finance Division


� Comparison of Cost Accounting and Financial Accounting:

No. Basis Financial Accounting Cost Accounting

1. Objective Financial performance and position

Ascertain cost and cost control

2. Costs and profits Shows overall costs and profit / loss

Shows details for each product, process, job, contract, etc

3. Control / Report Emphasis on reporting Emphasis on control and reporting

4. Decision making Limited use Designed for decision making

5. Responsibility Does not fix responsibility Can effectively fix responsibility

6. Time frame Focus on historical data Focus on present and future

7. Type of reports General reports like P&L Account, Balance Sheet, Cash Flow Statement

Can generate special reports and analysis

8. Legal need Statutory requirement Voluntary, except for some cases

9. Transactions Records external transactions Records internal and external transactions

10. Reader Everybody Internal management

11. Formats Standard, as per law Tailor made

12. Access Everybody, except for some Very limited access

13. Unit of value Monetary Monetary and physical




Finance Division,


Class note for




Dy. General Manager

Finance Division


� The role of Cost Accounting:




Finance Division,


Class note for




Dy. General Manager

Finance Division





Finance Division,


Class note for




Dy. General Manager

Finance Division





Finance Division,


Class note for




Dy. General Manager

Finance Division


� Cost Data for Management Purposes:




Finance Division,


Class note for




Dy. General Manager

Finance Division


� Methods and Techniques of Cost Accounting:

� The Methods of Cost Accounting

1. Job Costing

2. Process Costing

3. Farm Costing

� The Techniques of Cost Accounting

Following are the main types or techniques of costing for ascertaining costs:

No. Costing Technique Description

1. Marginal Costing Charging variable costs to operations, processes or products and writing off all fixed costs against profits in the period in which they arise.

2. Direct Costing Charging all direct costs to operations, processes or products and writing off all indirect costs against profits in the period in which they arise.

3. Absorption Costing

Charging all variable costs and fixed production overheads to operations, processes or products and writing off selling, distribution and administration overheads against profits in the period in which they arise.

4. Uniform Costing

Using the same costing principles and / or practices by a number of firms in the same industry. Helps in inter-firm comparison, price fixation, cost control / reduction and seeking government tax relief / protection.

5. Standard Costing System which involves fixation of cost standards, ascertain variances of actual cost with standard cost, variance analysis and presentation for corrective action and decision making.

6. Budgetary Control System which involves establishment of budgets, comparison of actual with budget, variance analysis and corrective action.

7. Historical Costing Actual cost ascertained after it has been incurred.

1.1 Batch Costing

1.2 Terminal or Contract Costing

1.3 Multiple or Composite Costing

2.1 Signal or Output Costing

2.2 Operation Costing

2.3 Operating Costing




Finance Division,


Class note for




Dy. General Manager

Finance Division


� Characteristics of an Ideal Cost Accounting System:




Finance Division,


Class note for




Dy. General Manager

Finance Division


� Installation of a Cost Accounting System:

Before installing a costing system have to consider the following ….

1. Consideration of the size, layout and nature of the undertaking

2. Study of the production nature, methods and stage

3. Study of the organizational activities

4. Study of the present departments and their work

� Modern Trends in Cost Accounting:

Documents

CMA 102 Cost Accounting Class Note Jan Jun 2011 Page 01 to 16