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7/27/2019 Best Presentation on cost sheet
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Basic Cost Concepts
Objectives
Introduction Meaning of Cost Accounting
Elements of Cost
Classification of Cost
Cost Ascertainment
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Objectives
Prepare Cost Sheet
Identify the Elements of Cost
Make Classification of Cost
Define Cost Ascertainment
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Introduction
Cost Accounting is the classification, recording and
appropriate allocation of expenditure for the
determination of the products or services, and the
suitable presentation of data for the purpose ofcontrol and management.
It normally illustrates the following components of the
cost aspect of the organization for Eg. ProductionAdministration, selling, and distribution.
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Meaning of Cost Accounting
It is the process of classification, recording and
appropriate allocation of expenditure for thedetermination of the products or services through the
presentation of data for the purpose to take decision
and and the suitable presentation of guide the
business organization.
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Difference Between Cost and Management
Accounting
Point of Difference Cost Accounting Managements Accounting
Objectives Determine the cost and
control
To take decisions through
presentation of accounting
information
Scope Deals with only cost andrelated aspects
Deals with cost andrevenue both
Utilization of Data Use quantitative
information pertaining to
transaction
Both qualitative and
quantitative information for
decision making
Nature Deals with past and present
data
Deals with future policy
and course of action
Utility Ends at the presentation of
information
Starts with cost information
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Preparation of Cost Sheet
It is a document that provides of the assembly of an
estimated detail cost in respect of cost center and cost
units.
It may be prepared on the basis of actual data or on
the basis of estimated data.
To find out the unit cost of the product, the statement
of cost place pivotal role in determining the cost of
production, cost of good sold, cost of sales and sellingprice of the product at every stage.
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Classification of Cost
1) Direct Cost Classification
>> Direct Material
>> Direct Labour
>> Direct ExpensesDirect Materials + Direct Labor + Direct Expenses = Prime cost
2) Indirect Cost Classification
>> Factory Overhead
>> Work Overhead
Factory cost = Prime cost + Factory overhead
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Direct Material
Direct: traceable to one particular process, job or productidentified with each unit of product
Example: manufacturing an apparel
Cloth, collar, buttons, cufflinks, thread Primary packing material (e.g., carton, wrapping,
cardboard, boxes, etc.)
Fuel, lubricating oil etc for operating & maintenance ofmachine
Small tools
Materials used for repairs & maintenance
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Direct Labour
Inspectors
Supervisors
Internal transport staff Storekeeper, maintenance staff
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Direct Expense
Expenses leading to a job or contract
Traveling expenses for negotiation
Special pattern, design
Special tools for executing the contract
Rent
Insurance
Canteen, hospital, power , lighting, maintenance
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Indirect Cost ClassificationManufacturing Overhead (OH)
All of costs of manufacturing excluding direct materials anddirect labor
a. Indirect Materials (IM) Materials, used in themanufacturing of products, which are difficult to trace toparticular products in an economical way
Glue, nails, cleaning supplies
b. Indirect Labor (IL)Labor, used in the manufacturing ofproducts, which is difficult to trace to particular products in aneconomical way
Wages for maintenance workers, factory supervisorssalary, idle time
c. All other types of manufacturing overhead
Depreciation on machinery, depreciation on factory
building, factory insurance, utilities for factory
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Stock of Raw Material
Particulars Amount
Opening Stock of raw Material XXXXX
(+) Purchases of Raw Material XXXXX
XXXXX
(-) Closing stock of Raw Material XXXXX
Cost of Material Consumed XXXXX
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Stock of Semi Finished goods
Particulars Amount
Prime Cost XXXXX
(+) Factory Overhead XXXXX
(+) Opening work in progress XXXXX
(-) Closing work in progress XXXXX
Factory Cost / Cost of production XXXXX
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Stock of Finished goods
Particulars Amount
Cost of Production XXXXX
(+) Opening stock of finished goods XXXXX
(-) Closing stock of finished goods XXXXX
Cost of goods sold XXXXX
(+) Selling overheads XXXXX
Cost of Sales XXXXX
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Elements of Costa) Material
b) Labour
c) Expenses
d) Overheads
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Classification of cost1) General Classification
Product v/s period Cost
Direct v/s Indirect Cost
Manufacturing v/s non manufacturing cost
2) Technical Classification
By function
By Variability
By controllability By normality
By time
For Planning and control
For managerial decision
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PRODUCT COSTS AND PERIOD COSTS
Product cost is that cost which is regarded as asset when
incurred, but becomes a part of cost of goods sold whenthe product is sold. For MUL, all manufacturing cost isProduct cost. (Raw material to WIP to Finished goods)For a service sector unit, absence of inventory means allare period costs.
Period costs (non-product cost): all costs in P&L accountexcept cost of goods sold. So, in a mfg. sector unit, allnon-manufacturing costs are period costs. (Ex.Distribution cost, design cost, R&D costs, Marketing
costs, customer-service costs, etc.)
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Normality
Normal Cost Abnormal Cost
Variability
Fixed Cost
Variable Cost
Semi Variable Cost
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Controllability
Controllable Cost Uncontrollable Cost
Time
Historical Cost
Pre determined Cost
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For Planning an Control
Standard Cost Budget Cost
For Managerial Decision
Marginal Cost
Sunk Cost
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Cost Ascertainment
Product Centre Service Centre
Profit Centre
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Classifying Costs for Financial Statements
Matching Concept: The costsincurred to generate
particular revenue should berecognized as expenses inthe same period that therevenue is recognized.
Period costs: Those coststhat are matched againstrevenues on a time period
basis
Product costs:Those coststhat are matched againstrevenues on a product basis.
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Ice cream (cream, sugar, milk, and milk solids) $0.65
Cone 0.05
Rent 0.61
Wages 0.25
Payroll taxes 0.25Sales taxes 0.23
Business taxes 0.08
Debt service 0.23
Supplies 0.09
Utilities 0.08
Other (insurance, advertising,professional fees) 0.05Profit 0.13
$2.50
Unit Price of an Ice Cream
Classifying Costs for Uptown Ice Cream Shop
Product
Cost
Period
Cost
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Cost Flows and Classifications in a Mfg. Co.
Cost ofrevenue = Costof goods sold
Raw materialsinventory
Work-in-process
inventory Finished goods
inventory
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Cost Classification for Predicting Cost
Behavior Volume index
Cost Behaviors
Fixed costsVariable costs
Mixed costs
Average unit costs
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Volume Index
Def: The unit measureused to definevolume
Examples: Automobilemiles
driven
Generating plant
kWh produced Stamping machine
parts stamped
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Fixed Costs
Def: The costs of
providing a companys
basic operatingcapacity
Cost behavior: Remain
constant over the
relevant range
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Variable Costs
Def: Costs that vary
depending on the level
of production or sales Cost behavior:
Increase or decrease
proportionally
according to the levelof volume
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Average Unit Cost
Def: activity cost per
unit basis
Cost Behaviors: Fixed cost per unit
varies with changes in
volume.
Variable cost per unitof volume is a
constant.
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Differential (Incremental) Costs
Def: Costs that
represent the
differences in totalcosts, which results
from selecting one
alternative instead of
other
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Opportunity Costs
Def: The potential benefit
that is given up as you
seek an alternative course
of action
Example: When you
decide to pursue a college
degree, your opportunity
cost would include the 4-years potential earnings
foregone.
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Sunk Costs
Def:Cost that has already
been incurred by past
actions
Economic Implications:
Not relevant to future
decisions
Example: $500 spent to
replace tires last yearnotrelevant in making selling
decision in the future
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Marginal Costs
Def: Added costs that
result from increasing
rates of outputs,usually by single unit
Example: Cost of
electricity
decreasing marginalrate
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