This document provides an introduction to cost accounting concepts for students of cost accounting at Goa University. It defines key cost accounting terms like cost, costing, cost accounting, cost unit, cost center, and classifications of costs. It distinguishes between different types of costs such as direct and indirect costs, and fixed and variable costs. It also distinguishes between cost accounting and financial accounting.

1. Basics of cost accounting
for Cost Accounting students of Goa University
based on
B Com syllabus
By
Dr. Sanjay P Sawant Dessai
Associate Professor
VVM Shree Damodar College of Commerce and Economics
Margao Goa
7/9/2018
Cost Accounting
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2. Introduction to Cost Accounting
• Concept of cost
• Costing
• Cost accounting
• Objectives
• Importance of cost accounting
• Cost unit
• Cost centre
• Classification of cost
• Distinction between cost accounting and financial accounting.
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3. Concept of cost
• Cost means price paid
• The amount of expenditure incurred
• Expenditure attributable to a given product/ service.
• The cost may be
• Material cost
• Labour cost
• Expenses
• Prime cost
• Factory cost
• Office cost
• Total sales
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4. Elements of Cost
• Material
• Labour
• Expenses
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5. Material
• Material The substance from which a product is made is known as
material.
• Direct as well as indirect.
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6. Direct material
– Direct Material
– integral part of a finished product
– can be conveniently assigned to specific physical unit
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7. Examples of direct material:
• All raw materials or components specifically purchased for
production / to make product
• Atta/ flour in case of food item
• Milk for Ice-cream
• Metal for fan
• Wood for furniture
• Primary packing material (e.g., carton, wrapping, cardboard,
boxes etc.)
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8. Indirect Material
• Cannot be conveniently assigned to specific physical units is termed as
indirect material.
• Examples of indirect material.
• Consumable stores, oil and waste, printing and stationery material etc.
• Indirect material may be used in the factory, office or the selling and
distribution divisions
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9. Direct Labour
• For conversion of materials into finished goods, human effort is
needed and such human effort is called labour.
Labour can be direct as well as indirect.
Direct Labor The labor which actively and directly takes part in the production
of a particular product
Examples -Process labour, productive labour, operating labour, etc.
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10. Indirect labour
– The labour employed for the purpose of carrying out tasks incidental to
goods produced or services
– It cannot be practically traced to specific units of output.
– Examples of indirect labour.
– Wages of storekeepers, foremen, timekeepers, directors’ fees, etc,
– Indirect labour may relate to the factory, the office or the selling and
distribution divisions
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11. Direct Expenses
• Expenses may be direct or indirect.
– Direct Expenses These are the expenses that can be directly, conveniently and
wholly allocated to specific product . Called as chargeable expenses
– Examples: Transport charges
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12. Indirect expenses
Indirect Expenses - expenses that cannot be directly, conveniently and wholly
allocated to cost centers or cost units.
– Examples- Rent, lighting, insurance charges etc.
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13. Prime cost
• Direct Material
• Direct labour
• Direct expenses
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14. Overheads
• Indirect material
• Indirect Labour
• Indirect expenses
Overheads are
Factory overheads
Administrative / general overheads
Selling and distribution overheads
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15. Overhead
• Overhead includes indirect material, indirect labor and indirect
expenses.
• All indirect costs are overheads.
• Overheads are of three types
– Factory or works overheads
– Office and administration overheads
– Selling and distribution overheads
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16. Factory Overheads
– Factory Overheads They include the following
• Indirect material used in a factory such as lubricants, oil, consumable stores etc.
• Indirect labour such as gatekeeper, timekeeper, works manager’s salary etc.
• Indirect expenses such as factory rent, factory insurance, factory lighting etc.
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17. Office and administration Overheads
• Indirect materials used in an office such as printing
and stationery material, brooms and dusters etc.
• Indirect labour such as salaries payable to office
manager, office accountant, clerks, etc.
• Indirect expenses such as rent, insurance, lighting
of the office
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18. Selling and Distribution Overheads
• Include the following things:
• Indirect materials used such as packing material, printing and stationery
material etc.
• Indirect labour such as salaries of salesmen and sales manager etc.
• Indirect expenses such as rent, insurance, advertising expenses etc.
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19. Components of Total Cost
• Prime cost
• Works cost / factory cost
• Office cost / cost of production
• Cost of sales / total cost
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20. Prime cost
• Prime Cost Prime cost consists of costs of direct materials, direct
labour and direct expenses.
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21. Factory Cost
• Factory Cost
• Factory cost comprises prime cost plus works or factory overheads
(indirect materials, indirect labours and indirect expenses incurred in
a factory).
• It is also known as works cost, production or manufacturing cost.
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22. Office cost
• Office Cost Office cost is the sum of factory cost and office and
administration overheads.
• This is also termed as or the total cost of production.
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23. Total cost
• Total Cost Selling and distribution overheads are added to the total
cost of production to get total cost or the cost of sales
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24. Components of cost
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Prime cost /direct cost Direct material plus Direct labour
Plus Direct expenses
Works Cost / factory cost Prime cost plus works overheads
Office cost / total cost of production Works cost plus office and administration overheads
Cost of sales / total cost Office cost plus selling and distribution overheads
Total sales Total cost plus profit

25. Non cost items
• Income tax
• Interest on capital
• Interest on loan
• Loss on Sale of fixed asset
• Donations
• Capital Expenditure
• Discount on shares & Debentures
• Commission to Partners/ Managers
• Preliminary Expenses Written off
• Wealth tax
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26. Material for samosa
• Flour (Maida/Aatta)
• Potato
• Peas
• Onion
• Spices
• Green chili
• Cheese
• Coriander
• Sauce
• Meat/chicken
• Fuel
• Gas
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27. Labour required for samosa making
• Cook
• Waiter
• Cleaning staff
• Sweeper
• Watchman
• Accountant
• Manager
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28. Expenses for samosa making
• Stove
• Microwave Oven
• Utensils
• Crockery ( plates , cups spoons)
• Table chair
• Refrigerator
• Telephone
• Water
• Electricity
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29. Costing
• Costing is any system for assigning costs to an element of a business.
• Process of identifying cost of the product or service
• Definition of cost accounting
• Cost accounting is, concerned with recording, classifying and
summarizing costs for determination of costs of products or services,
planning, controlling and reducing such costs and furnishing of
information to management for decision making.
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30. Objectives of cost accounting
• Recording and presentation of cost data
• Ascertainment of cost
• Fixation of selling price
• Cost control
• Cost reduction
• Assisting management in decision making
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31. Cost unit and cost centre
• Cost unit
• A unit of output in the production of which the costs are
incurred
• Cost Centre
• The smallest segment of activity or area of responsibility
for which costs are accumulated
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32. 7/9/2018
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Classification of Cost
Basis of Classifying Costs
✓Nature
✓Function
✓Direct/Indirect
✓Variability
✓Controllability

33. Classification of cost based on behaviour of
cost
• Fixed cost
• Variable Cost
• Semi Variable cost
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34. 7/9/2018
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35. Distinction between cost accounting and
financial accounting
• Meaning
• Definition
• Data - Cost data V/s financial data
• Monetary V/s non monetary data
• Historical and predetermined V/s historical cost
• Users - Internal v/s external use
• Mandatory V/s non mandatory
• Reporting – annual
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