Cost and management accounting (2015 16) unit 1

Cost and Management Accounting
S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: snselvaraj66@gmail.com Page 1
UNIT – I COST AND MANAGEMENT ACCOUNTING
Meaning – Definition – Scope – Objectives – Function – Merits and Demerits of Cost
and Management Accounting – Distinction between Cost, Management and Financial
Accounting – Elements of Cost – Cost Concepts and Cost Classification.
MEANING – DEFINITION – SCOPE – OBJECTIVES – FUNCTION – MERITS AND
DEMERITS OF COST AND MANAGEMENT ACCOUNTING
Meaning and Definition of Cost Accounting
Cost Accounting is the process of accounting for cost which begins with the
incurrence of cost and ends with the control of cost. In other words, it is a formal
system of accounting by means of which costs of products, services or activities are as
ascertained and controlled.
According to ICMA, London, “Cost Accounting is the process of accounting for cost
which begins with the recording of income and expenditure and ends with the
preparation of periodical statements and reports for ascertaining and controlling
costs”.
According to L.C.Cropper, “Cost Accounting means a specialized application of the
general principles of accounting in order to ascertain the cost of producing and
marketing any unit of manufacture”.
Scope of Cost Accounting
1) Cost Ascertainment: It deals with the collection and analysis of expenses, the
measurement of production of the different products at the different stages of
manufacture and the linking up of production with the expenses. The varying
procedures for the collection of expenses give rise to the different systems of
costing as Historical or Actual cost, Estimated costs, Standard costs, etc.
2) Cost Accounting: It is the process of accounting for cost which begins with
recording or expenditure and ends with the preparation of statistical data. It is
formal mechanism by means of which costs of products or services are
ascertained and controlled. Cost can be ascertained either by following the
historical or predetermined system of costing. Cost can be predetermined either
by standard costing or estimated costing.
3) Cost Control: Cost control is the guidance and regulation by executive action of
the costs of operating an undertaking. The cost can be controlled by standard
costing, budgetary control, proper presentation and reporting of cost data and
cost audit.
Principles of Cost Accounting
 Cost is related to its Cause
 Cost is charged after it is incurred
 Abnormal costs are excluded from costing
 Past costs are not charged to future period

 Concept of conservation has no place in costing
 Accounting for cost is based on double-entry principle
Objectives of Cost Accounting
(a) Analysis and Ascertainment of Costs: For the ascertainment of cost it involves
further study, analysis and classification of costs such as prime cost, work cost,
production cost, etc.
(b) Cost Control: Budgets and standards for the consumption of materials, use of
labor, and for expending the overhead are to be set and compared with the
actual performance.
(c) Ascertainment of Profitability: It is the objective of cost accounting to ascertain
the profitability of the activities carried out or planned.
(d) Determination of Selling Price: Cost accounting provides detailed information
about the composition of total cost plus a margin of profit for the determination
of the selling price.
(e) Providing a Basis for Business Policy: The objective of cost accounting is to help
the management in the formulation of business policy and in decision making.
Functions of Cost Accounting
 To set-up and revise standards: Standards, i.e. indices of efficiency are fixed are
revised in the light of data provided by cost accounting.
 To compare performance with standards: Cost accounting provides data on the
basis of which performance of various divisions and departments can be
compared and management can take-up remedial action to control costs.
 To serve as a Tool for Planning and Budgeting: Costing accounting performs the
basic function of acting as a tool for managerial planning and budgeting. It
provides data to make projections of future cost and product lines to be taken-
up.
 To serve as an Index for Managerial Performance: Cost accounting performs the
function of providing an index of managerial performance in different sections,
departments, divisions, etc.
 To Protect Interest of Investors: It compels the manager to prove their efficiency
which increases the profitability of organization. The shareholders can expect
better returns and better security of their investment.
 To Report to the Government: Cost accounting performs the function of
providing government with relevant data which are helpful in framing
budgetary policies, taxation policies, etc.
Advantages of Cost Accounting
 Cost accounting as an aid to management
 Advantage to employee
 Advantage to creditors, investors and bankers
 Advantage to government and the society
Disadvantages of Cost Accounting
o There is an argument that it is unnecessary

o It is expensive
o It is inapplicable to some systems
Meaning and Definition of Management Accounting
Management Accounting is compared of two words „Management‟ and „Accounting‟.
It is the study of managerial aspect of accounting. The emphasis of management
accounting is to redesign accounting in such a way that it is helpful to the
management in formation of policy, control of execution and appreciation of
effectiveness. It is that system of accounting which helps management in carrying out
its functions more efficiently.
According to the Institute of Chartered Accountants of India, “Such of its techniques
and procedures by which accounting mainly seeks to aid the management collectively
have come to be known as management accounting”.
According to Brown and Howard, “The essential aim of management accounting
should be to assist management in decision making and control”.
Characteristics of Management Accounting
a) Providing Accounting Information: Collection and classification of data is the
primary function of accounting department. The information so collected is
used by the management for taking policy decisions:.
b) Cause and Effect Analysis: The figures of profits are compared to sales, different
expenditures, current assets, interest payables, share capital, etc.
c) Use of Special Techniques and Concepts: The techniques used include financial
planning and analysis, standard costing, budgetary control, marginal costing,
etc.
d) Taking Important Decisions: It supplies necessary information to the
management, which may base its decisions on it.
e) Achieving of Objectives: The accounting information helps in achieving
organizational objectives. Historical data is used for formulating plans and
setting up objectives.
f) No Fixed Norms Followed: No specific rules are followed in management
accounting. But in financial accounting certain rules are followed for different
accounting books.
g) Concern with Forecasting: The management accounting is concerned with the
future. It helps the management in planning and forecasting.
Scope of Management Accounting
Management accounting covers not only the use of financial data and a part of costing
theory but may extend beyond the boundaries of accounting and costing. It requires
the aid of techniques of other disciplines such as economics, finance, mathematics,
statistics and operations research.

In management accounting one has to study the following:
 Financial Accounting: Financial accounting deals with the historical data. The
recorded facts about an organization are useful for future course of action.
 Cost Accounting: Cost Accounting provides various techniques for determining
cost of manufacturing products or services.
 Budgeting and Forecasting: Budgeting means expressing the plans policies and
goals of the enterprise for a definite period in future.
 Inventory Control: Inventory has a special significance in accounting for
determining correct income in a given period.
 Reporting Management: The reports are presented in form of graphs diagrams,
index numbers so as to keep the management informed of various actions.
 Interpretation of Data: The management accountant interprets various financial
statements to the management.
 Internal Audit: The actual performance of every department and individual is
compared with predetermined standards.
 Tax Accounting: Income statements are prepared and tax liabilities are
calculated. The management is informed about the tax burden.
Objective of Management Accounting
1. Measuring Performance: There are two types of performance that are typically
measured. The first is employee performance. The second performance
measurement is the measurement of efficiency, how the resources are used.
2. Assessing Risks: Risks are an integral part of business. An objective of
management accounting is to assess risk in order to maximize profits.
Generally, if high risk is undertaken there is a equal chance of getting more
profit or more loss and vice-versa.
3. Allocating Resources: Resource allocation is important to any organization.
Management accountant will determine the most efficient way to divide
resources and maximize profits.
Principles of Management Accounting
 Consistency
 Consider all possible losses
 Consider only normal costs
 Convention of the objectivity
 Controllable and uncontrollable costs
 Optimum utilization of resources
 Revaluation accounting
Functions of Management Accounting
 Planning and Forecasting
 Modification of Data
 Financial Analysis and interpretation
 Facilitates Managerial Control
 Communicating Accounting Information
 Supplying Financial Information to Various Levels of Management

Merits /Advantages of Management Accounting
 Increasing Efficiency
 Proper Planning
 Measurement of Performance
 Maximizing Profitability
 Improve Service to Customers
 Effective Management Control
Demerits /Disadvantages of Management Accounting
o Based on Accounting Information
o Lack of knowledge
o Top Heavy Structure
o Evolutionary Stage
DISTINCTION BETWEEN COST, MANAGEMENT AND
FINANCIAL ACCOUNTING
Point of
Difference
Cost Accounting
Management
Accounting
Financial Accounting
Orientation
Cost accounting is also
concerned with money as
a measure of economic
performance.
Management accounting
is concerned with all
situations including
monetary and non-
monetary events.
Financial accounting is
concerned with money as
the economic resources,
i.e. cash.
Scope
Costing accounting aims
at measuring the
economic performance of
the cost centers and
provides suitable cost
data to measure the
performance.
is a way of accounting
information system which
covers financial and cost
accounting, and all
aspects of financial
management
Under Financial
accounting the financial
aspect of the firm is dealt
with by way of preparing
Trading A/c, Profit and
Loss A/c, and Balance
sheet.
Analysis of
Performance
Cost accounting is
basically concerned with
collection, classification
and analysis of cost data.
can be applied for the
making the cost
accounting more
purposeful and
management oriented.
Financial accounting
indicates the position of
the business as a whole
in the final accounts
prepared for the purpose
of reporting and overall
business performance.
Time Factor
Cost accounting also
focuses attention on past
and current operation.
concentrates on future
operations, &profitability.
Financial account focuses
attention of past and
current operations.
Legal
Compulsion
Cost records are
maintained voluntarily in
order to meet the
requirement of the
management. But now
Company’s Act, 1956 has
made it obligatory to keep
the cost records in some
manufacturing industries.
There is no legal
compulsion as such in
respect of management
accounting system and
hence a company may
keep the system
management accounting
voluntarily to assist the
management functions.
Financial accounting
became compulsory for
every company on
account of legal provision.

Difference between Cost Accounting and Financial Accounting
Point of
Difference
Cost Accounting Financial Accounting
Purpose
Provides information for guidance of
the management for proper
planning, operation, control and
decision-making.
Provides information about the
enterprise in the form of Trading A/c,
Profit & Loss A/c, and Balance sheet
Requirements
These accounts are generally kept
voluntarily to meet the requirement
of the management.
These accounts are kept in such a
way as to meet the requirements of
Companies Act and Income Tax Act.
Recording
It consists of classification, recording
and analysis of transaction in a
subjective manner, i.e. according to
expenditure.
It consists of classification, recording
and analysis of transaction in an
objective manner, i.e. according to
the purpose for which costs are
incurred.
Analysis of
Profit
Here all the expenses are analyzed,
classified, appointed and allocated
in order to calculate unit-wise cost,
etc.
Here items of cost are usually
expressed in total and generally no
unit-wise analysis is done. It reveals
the profit of the business.
Control
It makes effective control with the
standard costing and budgetary
control.
It only records the information. No
effort is made in respect of any
control.
Periodicity
Reporting
It involves a continuous process. It
must ensure a flow of cost data at
regular interval.
Usually a year – at the end of the
accounting year.
Relationship between Cost Accounting and Management Accounting
 The purpose of cost accounting is not mere recording and cost-finding but an
effective instrument for managerial control.
 Management accounting is accounting designed to give utmost assistance to
management in formulating policies and controlling their current business
operations.
 The objectives of cost accounting are similar to those of management
accounting that employs all techniques of cost accounting, such as standard
costing, budgetary control, marginal costing, etc.
 Management accounting utilizes the principles and practice of both cost
accounting and financial accounting in the best interest of the business.
Relationship between Financial Accounting and Management Accounting
 Financial accounting is concerned with the recording of day-to-day transactions
of the business. These transactions are classified according to their nature.
 Management accounting uses financial accounts and taps other sources of
information too. These accounts are used to management in planning and
forecasting various policies.

ELEMENTS OF COST
Meaning of Cost: Costs that are usually considered an expense of the current period
may not be recorded as such because of special circumstances. Cost is the total spent
for goods or services including money, time and labor. Cost is the value of money that
has been used up to produce something, and hence is not available for use anymore.
Cost: It is the amount of resources given up in exchange for some goods or services.
The resources given up are expressed in monetary terms. In business, the cost may be
one of acquisition, in which case the amount of money expended to acquire it is
counted as cost. In this case, money is the input that is gone in order to acquire the
thing.
According to ICMA London, “Cost is the amount of expenditure (actual or notional)
incurred on, or attributable to, a specified thing or activity or cost unit”.
Expenses: Expenses are costs which have been applied against revenue of particular
accounting period in accordance with the principle of matching cost to revenue e.g.
cost goods-sold, office salaries of the period in which they are incurred.
Elements of Cost
Mere knowledge of total cost cannot satisfy the needs of management. For proper
control and managerial decisions, management is to be provided with necessary data
to analyze and classify costs. For its purpose, the total cost is analyzed by elements of
cost i.e. by the nature of expenses. Strictly speaking and the broad elements of cost
are three i.e. Materials, Labor and Other expenses.
These elements of cost are further analyzed into different elements as follows:
Elements of Cost
Materials Labor Other Expenses
Direct Indirect Direct Indirect Direct Indirect
Overheads
Production or Administration Selling Distribution
Works Overheads Overheads Overheads Overheads

All costs related to production of goods are called manufacturing costs; they are also
referred to as product costs. The following are the classification of costs associated
with manufacturing.
(1) Direct Materials: Direct materials are those materials which can be identified in
the product and can be conveniently measured and directly charged to the
product. These materials directly enter the production and form a part of the
finished goods.
Indirect Material: The materials which are not classified as direct materials are
called indirect materials. These materials are used for purposes ancillary to the
business and which cannot be conveniently assigned to specific physical units
is termed as “Indirect Material”. Indirect material may be used in the factory,
office or selling and distribution divisions. Consumable stores, oil and waste,
printing and stationery material, etc. are few examples of indirect materials.
(2) Direct Labor: Human effort is needed for conversion of materials into finished
goods; such human effort is called labor. In simple words, it is that labor
which can be conveniently identified or attributed wholly to a particular job,
product or process or expended in converting raw materials into finished
goods. Wages of such labor are known as direct wages.
Indirect Labor: Labor employed for the purpose of carrying out tasks incidental
to goods produced or services provided, is indirect labor. Wages of store-
keepers, foremen, time-keepers, director‟s fees, salaries of salesmen, etc. are
the examples of indirect labor costs. Indirect labor may relate to the factory,
office or selling and distribution divisions.
(3) Direct Expenses: All expenses which can be identified to a particular cost
centre and hence directly charged to the centre are known as direct expenses. In
other words, all expenses incurred specifically for a particular product, job are
called direct expenses. These are directly charged to the product. For
example, royalty, excise duty, hire charges of a specific plant and equipment
etc.
Indirect Expenses: These are expenses which cannot be directly, conveniently
and wholly allocated to cost centres or cost units. Examples of such expenses
are rent, lighting, insurance charges, etc.
(4) Overheads: Overheads may be defined as the aggregate of the cost of indirect
materials, indirect labor and such other expenses including services as cannot
conveniently be charged direct to specific cost units. Thus overheads are all
expenses other than direct expenses. The main groups into which overheads
may be sub-divided are (i) Manufacturing Overheads, (ii) Administration
Overheads, (iii) Selling and Distribution Overheads and (iv) Research and
Development Overheads.

By grouping the elements of cost, the following divisions of cost are obtained:
Direct material + Direct labor + Direct expenses = Prime cost
Prime cost + Factory overheads = Factory cost
Factory cost + Administrative overheads = Production cost
Production cost + Selling & Distribution overheads = Total cost (or)
Ultimate cost
COST CONCEPTS AND COST CLASSIFICATION
A cost accountant is mainly concerned with the following cost concepts:
 Concept of Objectivity: It is this concept gives direction to the activities relating
to cost finding, cost analysis, recording and cost reporting. This concept
necessitates goal congruence, i.e. cost exercises have to be in harmony with
objectives.
 Concept of Materiality: This concept that stress accuracy must be tempered by
good judgment, if no distortion of product cost is likely to result. Materiality is
determined with reference to nature of company‟s activities, managerial
policies and competitors‟ practices.
 Concept of Time Span: All assumptions relating to different cost exercise remain
valid only during related time span. The statement that cost is fixed is based on
a time span under consideration. No costs will remain fixed for all the time.
 Concept of Relevant Range of Activity: Relevant range of activity represents the
span of volume over which the cost behavior is expected to remain valid. A
fixed cost is fixed only in relation to the relevant range of activity during the
period. The relevant range of activity may be different between firms and for
individual firm also, it may change from time to time.
 Concept of Relevant Cost and Benefit: This concept is vital for decision-making
purposes. In evaluating alternative course of action, management should
consider only relevant cost and relevant benefit relating to alternatives under
consideration. Irrelevant cost and benefits, i.e. costs and benefits which are not
affected by decision under consideration are ignored.
Objectives of Cost Accounting
The main objectives of cost accounting can be summarized as follows:
 To determining selling price
 To determining and controlling efficiency
 To facilitating preparation of financial and other statements
 To Providing basis for operating policy
Costs Classification
The cost-classification is the process of grouping costs according to their
characteristics. The cost can be classified into the following:

 According to Elements: The cost is classified into (a) Direct cost, (b) Indirect
cost according to elements, viz. materials, labor and expenses. Further it is
classified as direct material and indirect material, direct labor and indirect
labor, direct expenses and indirect expenses.
 According to Functions or Operations: According to this classification, costs are
classified under the following functions:
 Production Cost: It includes the cost of direct material, direct labor,
direct expenses and factory overheads.
 Administration Cost: The cost of formulating policy, directing the
organization and controlling the operations of an undertaking which is
not related directly to a product or a service constitute administration
costs.
 Selling Cost: these are costs of seeking to create and stimulate demand
and the cost of securing orders.
 Distribution Cost: The cost of sequence of operations which begin with
making the product available for dispatch and ends with making the
reconditioned returned empty package.
 Research Cost: The costs of searching – new or improved products, new
application of materials, new or improved methods are called research
costs.
 Development Cost: These are costs of the process which begins with the
implementation of the decision to produce a new or improved product.
 Pre-Production Cost: These are those costs which are incurred on making
a trial production run prior to formal production.
 According to Nature or Behavior: On the basis of behavior costs may be
classified as:
(i) Variable Cost: Costs that vary almost in direct proportion to the volume
of production are called variable costs. The examples of such costs are
direct material, direct labor and direct chargeable expenses, such as
electric power, fuel, etc.
(ii) Fixed Cost: Costs which do not vary with the level of production are
known as fixed costs. These costs remain constant irrespective of the
level of output. Fixed costs remain fixed up to a certain level of
production.
Fixed costs can be further classified into: (a) Committed Fixed Costs –
Plant, building and equipment (depreciation, rent, taxes, insurance
premium, etc.) are examples; (b) Discretionary Fixed Costs –
Advertising, public relations, training, teaching, research, heath care etc.
are examples.
(iii) Semi-Variable Cost: Those costs which are partly fixed and partly
variable are called semi-variable costs. These costs vary with the level
of production but not in direct proportion to the level of production.

 According to Controllability: On the basis of controllability costs may be
classified as under:
a) Controllable Cost: This is a cost which can be influenced by the action of
specified member of an undertaking. The costs which can be controlled
by a specified member who is generally an important link in the
management are the controllable costs.
b) Uncontrollable Cost: It is a cost which cannot be influenced by the action
of a specified member of an undertaking. Uncontrollable cost generally
the fixed costs, the control of which does not lie within the province of a
member of the undertaking.
 According to Normality: Under this category costs may be categorized as
follows:
i. Normal Cost: It is the cost which is normally incurred at a given level of
output in the conditions in which that level of output is normally
attained. It is charged to costing profit and loss account.
ii. Abnormal Cost: It is the cost which is not normally incurred at a given
level of output in the conditions in which that level output is normally
attained. It is charged to costing profit and loss account.
 According to Time of Periodicity: Under this category costs may be divided as
follows:
a) Historical Cost: The historical cost is the actual cost, determined after the
event. Historical cost valuation states costs of plant and material, for
example, at the price originally paid for them.
b) Future Cost: The future costs are costs expected to be incurred at a later
date. Future costs are relevant for managerial decision making in cost
control, profit projections, expansion programs and pricing, etc.
 According to Association with Product: Under this category costs may be
classified into product cost and period cost as follows:
i. Product Cost: Product costs are those costs which are associated with and
directly identifiable with the product. In other words, costs which are
assigned to the product are product costs.
ii. Period Cost: Period costs are costs that are reported as expenses of the
period in question. These are costs which are not assigned to the product
but are charged against revenue costs of the period in which they are
incurred. All non-manufacturing costs such as general and administration
expenses, selling and distribution expenses are example of period costs.
 According to Relevance to Decision-making and Control: Under this category
costs may be classified as follows:
1. Marginal Cost: It is a variable cost of one unit of a product or a service i.e. a
cost which would be avoided if that unit was not produced or provided.

2. Differential Cost: A difference in cost between one course of action and
another is differential cost. This is to compare the cost for decision-making.
If a decision results in an increased cost, it is incremental cost. If the cost is
decreased, it is referred to as a decremented cost.
3. Joint Cost: Whenever two or more products are produced out of the same
basic raw material or process, the cost of material purchased and processing
are called joint costs. Such costs have to be apportioned to various products
on some basis.
4. Shut-down Cost: A cost will still be required to be incurred even though a
plant is closed or shut-down for a temporary period. For example, the cost
of rent, rates, depreciation, maintenance expenses etc. are shut-down costs.
5. Sunk Cost:A cost which has been incurred in the past or sunk in the past and
is not relevant to the particular decision-making, is a sunk cost. If it is
decided to replace the existing plant, the written down book value of the
plant less the sale value of the existing plant, is a sunk or irrevocable cost.
6. Opportunity Cost: According to CIMA, “Opportunity cost is the value of a
benefit sacrificed in favor of an alternative course of action”.
7. Imputed Cost: It is hypothetical cost required to be considered to make costs
comparable. If the owner of the factory charges rent of the factory to the
cost of production to make cost comparable with that of those undertakings
which run production in rented factories, it is an imputed cost as the rent
has actually not been paid. Same is the case with charging interest on one‟s
own capital.
8. Out-of-pocket Cost: It is the cost which involves current or future
expenditure based on managerial decisions. For example, a company has its
own trucks for transporting goods from one place to another. It seeks to
replace these by employing pubic carrier of goods. While making this
decision management can ignore depreciation, but not the out-of-pocket
costs in the present situation, i.e. fuel, salary to drivers and maintenance
paid in cash.
9. Replacement Cost: It is the cost of replacing a material or asset by purchase
from the current market. For example, if an „x‟ material was originally
purchased @ Rs.250 per kg and now it can be replaced by purchase from
the market at the current rate of Rs.280 per kg, the replacement cost is
Rs.280 per kg.
10.Programmed Cost: The programmed cost is a cost that is subject to both
management discretion and control but which has little immediate relevance
to current operations although it is generally incurred to ensure long-term
survival. Advertisement, research and development, are examples of
programmed cost.
Costing Methods and Techniques
Cost accounting is a process of ascertaining or estimating cost. Hence it consists of a
body of methods and techniques by which cost of products and services are
determined are presented. These could be regarded as the tools of cost accountants.

Methods of Costing
The method of costing to be applied in a particular concern depends upon the type and
nature of manufacturing activity. Basically there are two methods of costing:
(i) Specific order costing and (ii) Non-specific order costing
Specific Order Costing: It includes:
1. Job Order Costing: This method applies where work is undertaken to customers‟
special requirements. Cost unit in job order costing is taken to be job or work
order for which costs are separately collected and completed.
2. Contract Costing (or) Terminal Costing: This is a variation of job costing and
therefore, principles of job costing apply to this method. The difference
between job and contract is that job is small and contract is big. Contract
costing is most suited to construction of buildings, dams, bridges, etc.
3. Batch Costing: In this method the cost of a batch or group of identical products
is ascertained and therefore, each batch of products is a cost unit for which cost
is ascertained. Readymade garments, toys, shoes, etc. are the examples of this
type of costing.
Non-Specific Order Costing: It includes:
1. Process Costing: As distinct from job costing this method is used in mass
production industries manufacturing standardized product in continuous
process of manufacturing. Costs are accumulated for each process or
department. Textile Mills, Chemical works, Sugar Mills, Refineries, Soap
manufacturing industries which employ this method.
2. Operation Costing: A process may consist of a number of operations and
operating costing involves cost ascertainment for each operation instead of a
process. This method provides minute analysis of costs and ensures greater
accuracy and better control.
3. Single, Output (or) Unit Costing: This method of cost ascertainment is used
when production is uniform and consists of a single or two or three varieties of
the same product. Where the product is produced in different grades, costs are
ascertained grade-wise. This method is applied in mines, quarries, brick kilns,
flour mills, etc.
4. Operating (or) Service Costing: This method should not be confused with
operation costing. It is used in undertakings which provide services instead of
manufacturing products. For example, transport undertakings, electricity
companies, hotels, hospitals, cinemas, etc. use this method.
Techniques of Costing
1. Standard Costing: Standard cost is the pre-determined cost as target of
performance, and actual performance is measured against the standard. The
differences between standard and actual costs are analyzed to know the reasons
for difference so that corrective actions may be taken.
2. Budgetary Control: A budget is an expression of a firm‟s business plan in
financial form and budgetary control is a technique applied to the control of

total expenditure on materials, wages and overheads by comparing actual
performance with planned performance. The budget is also used for control and
coordination of business.
3. Marginal Costing: Marginal cost regards only variable costs as the cost of the
products. Fixed cost is treated as period cost and it is transferred to costing
profit and loss account of the period. This technique is used to study the effect
on profit of changes in volume or type of output.
4. Total Absorption Costing: It is a traditional method of costing whereby total
costs (fixed and variable) are charged to products. This is complete contrast to
marginal costing where only variable costs are charged to products.
5. Uniform Costing: This is not a separate technique or method of costing like
standard costing or process costing. It simply denotes a situation in which a
number of firms adopt a uniform set of costing principles.
Text Books & References
1. S.P.Jain and K.L.Narang, “Cost Accounting”, Kalyani Publishers,
New Delhi, 8th
Edition, 2014.
2. R.S.N.Pillai and V.Bagavathi, “Cost Accounting”, S.Chand and Company Ltd.,,
New Delhi, Edition, 2004.
REFERENCE BOOKS:
1. Jain and Narang – Costing
2. Nigam and Sharma – Cost Accounting
3. R.K.Sharma & K.Gupta – Management Accounting
4. S.N.Maheswari – Management Accounting

Cost and management accounting (2015 16) unit 1

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Cost and management accounting (2015 16) unit 1