It

concerns with financial statements for external use by investors, creditors, govt authorities and other interest groups. It involves recording, classification and analysis of business transaction in a subjective manner according to nature of expenditure so as to facilitate preparation of profit and loss account and B/S for showing the result of business operations.

 During

the 1950s, emphasis shifted from external users to internal users . This shift led to the emergence of Management Accounting . MA is a system which is concerned with internal reporting of information to management for planning and control operations, decision making on special matters and formulate long range planning.

 Cost

means the amount of expenditure incurred on a particular thing.. Cost of a product normally includes all those expenses which are incurred for the product starting from the purchase of raw material till finished goods are sold in the market. Thus, cost of a TV set means the total Expenses such as Material, labour etc on manufacturing and selling a set of TV.

Costing refers to the techniques and process of ascertainment of cost. The technique consist of principles and rules for determining the cost of product and services. To find out the total cost of the product there are various methods available like Unit costing, Batch Costing, process costing, contract costing etc. Costing involves the following steps

1. collecting the cost. 2.classifying the cost into basic elements such as Material, labour, Expenses etc. Allocating total cost to a particular thing i.e. a product, a contract or a process.

Cost accounting as ,classifying, recording and appropriate allocation of expenditure for determination of costs of product or services and for the presentation of suitably arranged data for the purpose of control and guidance of management. Functions 1. Cost ascertainment 2. Cost analysis- To be effective in decision making, management must have a detailed knowledge of the cost activity within the company. Cost data therefore is a basic tool in the decision making process 3. Cost Control

Material labour other

expenses

Material Direct labour Direct Expenses

Direct

 Factory

and work Overheads Office and Administration Overheads Selling Overheads Distribution Overheads

stock of Raw Material (+) purchase of Raw Material (+) carriage inwards (-) closing stock of raw material Milk used for ice cream, Paper used for printing a book, speakers in a radio set, sugarcane used in making sugar, Gunny bags used for filling in sugar,
Opening

 Manufacturing

Wages Production wages Productive wages

 Chargeable

Expenses Example- Royalty on production Cost of design Fees paid to architect, consultant etc

 Power

and fuel Factory rent Dep. On plant and machinery Indirect wages (Wages paid to Maintenance worker, salaries paid to sweepers) Indirect material (Oil used for lubricating Machines, Nails used in a shoe.

salaries Printing and stationery Office rent Electricity Dep. On furniture

Office

 Advertising Traveling

Expenses Discount allowed Bad debts

 Carriage

outwards Packing charges Dep. On delivery vans Warehouse license fees

1. Payment which are not related to the product eg. Donations, gifts, charities etc. 2. Abnormal Losses- Loss by Fire, loss by theft, loss by floods etc. 3. Non recurring Expenses- Are those expenses which are not incurred regularly .eg. Preliminary expenses W/off, Goodwill W/off etc. 4. Payment which depends only on the profit figure eg. Income Tax. 5. Appropriations of profit eg. Payment of dividends, transfer to general reserve, transfer to sinking fund etc. 6. Financial Expenses Eg. Int on loan, Bank interest, interest to Debenture holder, bad debt, cash discount etc. : Cash discount and Bad debts can be alternatively treated as Selling expenses also. In that case they should be included While finding out the cost of the product.

 Normally

2 types of incomes are related to the product 1. sales 2 sale of scrap Hence to find out the actual profit made by the product only these 2 incomes are recorded in the costing books. Other incomes like dividend received , rent received, Profit on sale of shares etc which are not related to the product can not be included in the costing records.

cost sheet is a systematic statement prepared by a cost accountant to find out the actual cost and the actual profit related to the product. The format of a cost sheet is as given below. format of cost sheet.docx
A

1.Prime cost = Direct Material +Direct Labour + Direct Expenses 2.Work Cost = Prime cost + Works Overheads 3.Cost Of Production = Work Cost +Administration Overheads 4.Total Cost Or Cost of sales = Cost of production + Selling and distribution Overheads

used for lubricating machines Indirect Material Wire for making electric motors Direct Material Bottles used for filling a soft drink Direct Material
Oil

Cushion seats to be fixed in a passenger car.

Direct Material Sugarcane used for making sugar Direct Material Speakers in a radio set Direct Material Milk used for making ice-cream Direct Material Paper used for printing a book Direct Material

premium paid for specific jobs Direct wages Wages paid to piece workers Direct wages Salaries paid to sweepers Indirect wages Directors fees Indirect wages Wages paid to maintenance workers Indirect wages
Overtime

Interest on capital is an example of imputed costTrue(imputed cost is notional cost not involving any actual cash payment computed only for the purpose of decision making.) All cost are controllable False Variable cost per unit varies with the increase or decrease in the volume of output. False An item of cost that is direct for one business may be indirect for another business True

Fixed cost per unit remains fixedFalse Costing and cost accounting are the same False- because cost accounting= costing +cost reporting+ cost control.