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,
Class note for
Deputy General Manager Professional Level –I
Finance Division,
Dhaka Stock Exchange Ltd.
102 – Cost Accounting
Cost Accouting
Course Teacher:

Deputy General Manager
Finance Division,
Dhaka Stock Exchange (DSE),
9/F Motijheel C/A, Dhaka - 1000, Bangladesh.
Email: md.monowar@dsebd.org
md.monowar@yahoo.com
md.monowar@gmail.com
1
Md.Monowar Hossain ACMA, ACS
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
Subject Code :COA 102 COST ACCOUNTING

Professional Level –I
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.
2
Dy. General Manager
Finance Division
Course Teacher:
Class note for
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).
3
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
Subject Code :COA 102 COST ACCOUNTING

(ONE PAPER - 3 HOURS - 100 MARKS)
Class Plan
No.
Course Contents
Class
1 Introduction and describe career plan with long vision
-Definition of Cost Accounting,
2 102.01 -Comparison of Cost Accounting and Financial Accounting;
Introduction to -The role of Cost Accounting;
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.
-Cost Object;
3 102.02 -Expenditures,
Cost Concepts, -Cost,
Classifications and -Expense and Loss;
-Cost Classifications;
Statements
-Cost Data and Uses;
-The Chart of Accounts;
-Statement of Cost of Goods Manufactured and Sold;
-Income Statement.
-Classification of Materials;
4&5 102.03 -Accounting for Materials;
Costing and -Pricing the Issue of Materials Valuation of Inventory;
Control of -Periodic Inventory System and Perpetual Inventory System;
-Inventory Planning;
Materials
-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.
4
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
-Productivity and Labour Costs;

6, 7 & 8 102.04 -Costs included in Labour;
Costing and -Accounting for Labour;
Control of 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.
-Manufacturing Overhead Costs;
9, 10 & 102.05 -Actual Vs. Normal Costing of Manufacturing Overhead;
11 Costing and -Production Capacity,
Control of -Predetermined Overhead Rates;
-Departmental vs. Plant-wise Overhead Rates;
Manufacturing
-Separating Mixed Costs.
Overhead
-Scatter-graph;
-High-low Method and Regression Analysis;
-Accounting for Manufacturing Overhead;
-Analysis and Disposition of Under-applied-and Over-applied Overhead.
-Service department costs;
12,13 & 102.06 -Volume based costing;
14 Service -Need for cost allocation;
Department Costs -Guidelines for cost allocation;
-Plant-wise rate vs. departmental rates;
Allocation
-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.
-The Contemporary Manufacturing Environment;
15,16& 102.07 -Limitation of Traditional Costing Systems;
17 Activity-Based -ABC Defined;
Costing (ABC) -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.
5
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
-Objective of Cost Accumulation;

18,19& 102.08 -Cost Accumulation Periodic vs. Perpetual;
20 Cost Accumulation -Cost Accumulation-Actual vs. Standard;
System -Periodic an Perpetual Cost Accounting System;
-The Factory Ledger.
-Job Order Costing;
21,22 & 102.09 -Job Order Cost System-Illustrated;
23 Job Order Cost -Spoiled Goods;
System -Defective Goods;
-Scrap materials and Waste Materials in a Job order Cost System.
-Process Costing Defined;
24,25,26 102.10 -Objective of Process Cost System;
& 27 The Nature and -Characteristics of a Process Cost System;
Characteristics of -Comparison of Job Order and Process Cost Accumulation System;
-Production by Department;
process Cost
-System Flow;
System
-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
6
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
CMA
102: Cost Accounting
-Definition of Cost Accounting,

Class 102.01 -Comparison of Cost Accounting and Financial Accounting;
No. 2 Introduction to -The role of Cost Accounting;
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
7
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
8
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
Comparison of Cost Accounting and Financial Accounting:
No. Basis Financial Accounting Cost Accounting

Financial performance and
1. Objective Ascertain cost and cost control
position
Shows overall costs and profit / Shows details for each product,
2. Costs and profits
loss process, job, contract, etc
Emphasis on control and
3. Control / Report Emphasis on reporting
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
General reports like P&L
Can generate special reports
7. Type of reports Account, Balance Sheet, Cash
and analysis
Flow Statement
Voluntary, except for some
8. Legal need Statutory requirement
cases
Records internal and external
9. Transactions Records external transactions
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
9
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
The role of Cost Accounting:
10
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
11
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
12
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
Cost Data for Management Purposes:
13
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
Methods and Techniques of Cost Accounting:
The Methods of Cost Accounting

1.1 Batch Costing
1. Job Costing 1.2 Terminal or Contract Costing
2. Process Costing 1.3 Multiple or Composite Costing
3. Farm Costing
2.1 Signal or Output Costing
2.2 Operation Costing
2.3 Operating Costing
The Techniques of Cost Accounting
Following are the main types or techniques of costing for ascertaining costs:
No. Costing Technique Description

Charging variable costs to operations, processes or products
1. Marginal Costing and writing off all fixed costs against profits in the period in
which they arise.
Charging all direct costs to operations, processes or products
2. Direct Costing and writing off all indirect costs against profits in the period in
which they arise.
Charging all variable costs and fixed production overheads to
operations, processes or products and writing off selling,
3. Absorption Costing
distribution and administration overheads against profits in the
period in which they arise.
Using the same costing principles and / or practices by a
number of firms in the same industry. Helps in inter-firm
4. Uniform Costing
comparison, price fixation, cost control / reduction and seeking
government tax relief / protection.
System which involves fixation of cost standards, ascertain
5. Standard Costing variances of actual cost with standard cost, variance analysis
and presentation for corrective action and decision making.
System which involves establishment of budgets, comparison
6. Budgetary Control
of actual with budget, variance analysis and corrective action.
7. Historical Costing Actual cost ascertained after it has been incurred.
14
Dy. General Manager
Finance Division
Course Teacher:
Class note for
Finance Division,
Characteristics of an Ideal Cost Accounting System:
15
Dy. General Manager
Finance Division
Course Teacher:
Class note for
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:
16
Dy. General Manager
Finance Division

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The Institute of Cost and Management Accountants of Bangladesh

Md.Monowar Hossain MBA,ACMA, ACS,

Subject Code :COA 102 COST ACCOUNTING

102.01 Introduction to Cost Accounting

102.02 Cost Concepts, Classifications and Statements

102.03 Costing and Control of Materials

102.04 Costing and Control of Labour

102.05 Costing and Control of Manufacturing Overhead

102.06 Service Department Costs Allocation

102.08 Cost Accumulation System

102.09 Job Order Cost System

102.10 The Nature and Characteristics of process Cost System

Subject Code :COA 102 COST ACCOUNTING

-Productivity and Labour Costs;

-Objective of Cost Accumulation;

Operational planning and control

-Definition of Cost Accounting,

Definition of Cost Accounting:

The process of identifying and evaluating production costs.

Objectives of Cost Accounting

Comparison of Cost Accounting and Financial Accounting:

No. Basis Financial Accounting Cost Accounting

The role of Cost Accounting:

Cost Data for Management Purposes:

Methods and Techniques of Cost Accounting:

The Methods of Cost Accounting

No. Costing Technique Description

Characteristics of an Ideal Cost Accounting System:

Installation of a Cost Accounting System:

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

Modern Trends in Cost Accounting:

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