Cost-Analysis, Concepts, Classification and Cost

Sheet

Presented By: Ashish Goyal

Jitendra Jain

Nawal Surana

Nitesh Sadani

Roadmap

Cost Concepts

Cost Classification

Cost Sheet

Cost Concepts

Cost Object

Cost Driver

Conversion Cost

Contribution Margin

Carrying Cost

Out of Stock Cost

Ordering Cost

Contd…..

Development Cost

Policy Cost

Idle Facilities Cost

Incremental Revenue

Urgent Costs

Postponable Costs

Pre-Production Costs

Contd….

Research Costs

Training Costs

CLASSIFICATION OF COST

Comparing Merchandising and Manufacturing Activities

Merchandisers . . . Buy finished

goods. Sell finished goods.

Manufacturers . . . Buy raw materials. Produce and sell

finished goods.

Shoppers Stop

Classification Of Cost

1. According To Nature2. According To function3. According To Identifiably4. According To Behavior5. According To Controllability6. According To Normality7. According To Period8. According To Time9. According To Planning and Control10. According To Association with Product11. According To Managerial Decisions.

Classification Of Cost

1. According To Nature Or Elements

Materials Cost

LabourCost

Expenses

Classification Of Cost

2 According to functions

ProductionCost

AdministrationCost RD Cost

Selling &Distribution

Cost

Classification Of Cost

3 According To Identifiably

Direct Indirect

Direct Costs and Indirect Costs

Direct costs

Costs that can beeasily and conveniently traced to a unit of product or other cost objective.

Examples: direct material and direct labor

Indirect costs

Costs cannot be easily and conveniently traced to a unit of product or other cost object.

Example: manufacturing overhead

Classification Of Cost

4 According To Behavior

Fixed VariableSemi-Fixed

Variable

Cost Classifications for Predicting Cost Behavior

How a cost will react to changes in the level of

business activity. Total variable costs

change when activity changes.

Total fixed costs remain unchanged when activity changes.

How a cost will react to changes in the level of

business activity. Total variable costs

change when activity changes.

Total fixed costs remain unchanged when activity changes.

Total Variable Cost

Total Cost of materials depends upon How much materials you use

Materials used

Tot

al m

ater

ials

bill

Variable Cost Per Unit

Materials Cost

Per

Uni

t Cos

t

Per unit materials cost will remain constant

Total Fixed Cost

Your fixed cost probably does not change when you make production.

Total production

Mon

thly

Bas

ic T

Bill

Fixed Cost Per Unit

production

Mon

thly

Bas

ic B

ill p

er u

nit

The average fixed cost per unit decreases as more production is made.

Classification Of Cost

5 According to Controllability

ControllableCosts

Uncontrollable Costs

Classification Of Cost

6 According To Normality

NormalCosts

AbnormalCosts

By relationship with accounting period

Capital cost The cost required to earn income or to increase

earning capacity For ex.- the cost of rolling machine in steel industry.

Revenue expenditure Expenditure required to maintain earning capacity For ex.- cost of material for production, labor

charges, salary, depreciation, repairing charges etc.

By time

Historical costsThe costs which ascertained after incurringNot helpful in decision making but can be

verified due to evidence of occurrence.

Predetermined costsComputed in advancehelpful in decision making

According to planning and control

Budgeted cost- Estimate of expenditure for different phases of

business operations. Various budgets are made for various activities.

Standard cost- Technical estimates for material, labor and

overheads for a selected period of time & prescribed set of work conditions.

Determination in advance about production cost.

By association with the product

Product costsThese are costs directly and indirectly

identifiable with the product. They are direct materials, direct labor, and factory overhead.

Contd…

Period costs Those costs neither directly nor indirectly related

to the product are not inventoried but identify on the basis of time like- rent, salary etc.

For ex.- administrative expense, and interest incurred on corporate bonds (financing expense)

For managerial decisions

Marginal cost Total of variable cost which means it concerns

about prime cost and variable overheads.

Imputed cost These are the costs which do not involve cash

outlay. They are not included in cost accounts but are important for taking into consideration while making management decisions.

Contd…

Differential costsThe difference in total cost between two

alternatives is termed as differential cost. incremental costs. detrimental costs.

Contd…

Out of pocket costs-

It means the present or future cash expenditure

regarding a certain decision will vary depending upon

the nature of the decision made.

Contd…

Sunk costs Sunk costs are historical or past costs.

For ex.- after deducting salvage value form Investments in plant and machinery, buildings etc..

Contd…

Opportunity cost Opportunity cost refers to an advantage in

measurable terms that have foregone on account of not using the facilities in the manner originally planned.

Contd…

Avoidable and unavoidable costs

Avoidable costs are those which will be eliminated if a

segment of a business (e.g., a product or department) with

which they are directly related is discontinued.

Unavoidable costs are those which will not be eliminated

with the segment. Such costs are merely reallocated if the

segment is discontinued.

Contd…

Replacement cost- It is the cost at which identical assets or materials

can be replaced.

Explicit cost- The cost which involves immediate payment of cash. For Ex.- salary, wage, interest on capital etc.

Implicit cost- The cost which doesn’t involve immediate payment

of cash. For ex.- depreciation