cost

1. COST & MANAGEMENT
ACCOUNTING

3. What is ‘Cost’?
Cost, Price, Value

4. What is ‘Cost Accounting’?

5. Financial Accounting v/s Cost Accounting
Cost Accounting v/s Management Accounting

6. OBJECTIVES OF COST
ACCOUNTING
1. Ascertainment of cost of product or service
2. Valuation of inventories
3. Providing data for planning, control and
decision making

7. Ascertainment of cost of
productservice
 Measurement of various elements of costs
1. Materials, 2. Labour (Manpower costs), 3. Expenses
(overheads)
 Accounting for losses
a) Normal loss, b) Abnormal loss
 Fixation of price to be charged to the customers
C+P= S
S-C= P
S-P= C

8. Valuation of inventories
 Raw materials
 Work in process
 Finished goods
 FIFOLIFOWeighted average cost

9. Providing data for planning, control
and decision making
 Introduction of a new product
 Discontinuing or closing a product
 Further processing of a product
 Opening a new sales office or branch
 Submitting tenders
 Make or buy decision
 Cost reduction or cost control

10. CLASSIFICATION OF COSTS

11. CLASSIFICATION OF COSTS

12. Rent
Factory Cost
Fixed Cost
Uncontrollable
Cost

13. Functional
classification
Factory
costs
 Material costs
 Labour costs
 Power
 Repairs and
maintenance
Admin
costs
 Salaries to
admin staff
 Audit fees
 Bank charges
 Legal expenses
Selling
costs
 Advertising
 Sales Promotion
 Trade exhibitions
 Commission
 Salesmen Travelling
 After sales service
Distribution
costs  Storage costs
 Order processing
costs
 Transportation
costs
Research and
development costs
 Product research
 Process research
 Marketing research

14. Traceable and non-traceable costs

15. Traceable costs
Direct or indirect costs
Materials Labour Overheads

16. Direct and indirect materials
Direct materials- which can be directly allocated
to a cost centre or a cost object
Illustration- Raw materials used- Plastic in toys
or bottles, steel in kitchen utensils, gold in gold
necklace
Indirect materials- which cannot be identified in
or allocated to a product
Illustration- cotton waste, lubricants, spares

17. Direct and indirect wages
Direct labour cost- wages of those workers who
are readily identified or linked with a cost
centre or cost object
Indirect labour cost- wages of the workers which
are not directly allocable to a particular cost
centre – factory security staff or maintainance
staff salaries

18. Direct and indirect expenses
Direct expenses- which can be linked to a
product
Illustration- Hire charges of a mould, royalties to
collaborator, job processing charges
Indirect expenses- which cannot be directly
allocable to a product
Illustration- Factory power, insurance, repairs

19. Behavioural classification of costs
Behaviour
Fixed costs Variable costs Semi-variable costs

20. Fixed costs
 Cost which does not vary with the change in volume
of activity
 Factory or office rent, audit fees, permanent staff
salaries, depreciation

21. Variable costs
 Costs which tend to directly vary with the volume of
activity
 Raw materials consumed, wages on piece rate basis,
sales commission

22. Semi variable costs
 Costs which contain both fixed and variable elements.
They are partly affected by fluctuation in the level of
activity
 Power, salesmen remuneration (fixed
salary+commission on sales)

23. Controllability classification
Controllable costs- discretion of management
Illustration- Sponsorship of an event, outbound
or offshore picnic for staff
Uncontrollable- No option or discretion
Illustration- Lease rent, property taxes, allocated
costs from the view point of product manager

24. Conversion costs
Costs which are
necessary to convert
raw materials into
finished products-
Direct labour costs
and manufacturing
overheads

25. Budgeted costs
Costs which are
expected to be
incurred during a
relevant accounting
period

26. Standard costs
Standard costs are the
costs that should
have been incurred
on actual production

27. SPECIAL COSTS FOR
DECISION MAKING

28. Opportunity cost
The cost of opportunity
lost or sacrificed

29. Notional cost
It is an imaginary cost
which is included in the
cost units or cost centres
especially when its
performance is
measured with
competitors which are
not enjoying the same
benefits
e.g. rent, interest

30. Historical cost
Original cost of an
asset when it was
acquired or
constructed

31. Replacement cost
Cost of replacing an
asset according to its
current worth

32. Sunk cost
A cost that has already
been incurred and
which cannot be
recovered-
Inventory, R & D,
Asset discarded

33. Capacity costs
Capacity costs tend to be
fixed in relation to
changes of activity
within short term
periods
Over long term periods of
several years,
significant changes in
demand will cause
capacity costs to change

34. Period cost (Same as fixed costs)

35. Product costs
Product costs refer to
the costs incurred to
create a product

36. Product costs
MAY 10, 2022
MANY THANKS FROM ANSHUL GARG FAMILY & FRIENDS

37. Target costs
Maximum amount of
cost that can be
incurred and with it a
firm can still earn the
required profit
margin at a particular
selling price

38. Step costs
 A step cost is a cost
that does not change
steadily with changes
in activity volume,
but rather at discrete
points-
School picnic- buses
Hospital- no of nurses

39. Relevant and Irrelevant costs
 Costs which are are
not relevant to the
decision are relevant
and irrelevant costs
e.g. cost of raw
material in stock in
respect of product
discontinued

40. Non cash costs
Depreciation on assets

41. Management Accounting-
Roadmap
2020
2021
2022
2023

42. Basis of
classification
Costs Related topic
Functional
classification
Factory, admin, selling Methods of costing
Behavioral
classification
Fixed, variable, semi
variable
CVP analysis
Traceability
classification
Direct and indirect
costs
Allocation of
overheads
Standard Costing Standard and actual
costs
Standard costing and
variances
Budgetary control Budgeted costs Budgetary control
Special costs Opportunity costs,
relevant costs, sunk
costs
Decision making

43. Thanks