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Cost Accounting Notes And Sample Cost Sheet

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Published in: Costing
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Hi All please find the cost sheet notes and a sample cost sheet.

Sanjeev / Pune

9 years of teaching experience

Qualification: MBA/PGDM (sinhgad institute of management - 2011), B.Com (Chatrapati Sahuji Maharaj University, Kanpur - 2009)

Teaches: All Subjects, English, Mathematics, Science, Accountancy, Business Studies, Commerce Subjects, Statistics, Business Mathematics, BBA Subjects, Management Subjects

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  1. Evolution of Cost Accounting The origin of development of Financial Accounting (the art and science of accountancy) lies in the development of trade and commerce. With the growth of industry, the business management became more complicated and difficult task. Information provided by conventional accounting system was not sufficient for managerial decision making. Managers were interested to have activity wise analysis of performance of the organization. To calculate the profit per activity, the cost of each activity is required to be calculated. Hence the need was felt to have a system to calculate such costs. Thus, Cost Accountancy which stared as a branch of financial accounting, later on became a specialized field. Thus limitations of financial accounting resulted into development of cost accounting methods and techniques. From the financial records we can see that the profit for the financial year is Rs. 5,000/- which is 21% of sales. .. Particulars Sal Less: Costs Profit / (Loss) Profit / (Loss) . .a good performance. But the cost accounting records reveal the following facts: Product A 200,000.00 225,000.00 25,000.00 -13% Product B 350,000.00 275,000.00 75,000.00 Product C 500,000.00 325,000.00 175,000.00 Total 825,000.00 225,000.00 Thus we can see the need and importance of cost accounting as a separate branch from financial accounting. Definitions Cost: The monetary value of all sacrifices made to achieve an objective (i.e. to produce goods and services). Costing: It is the classifying, recording and appropriate allocation of expenditure for the determination of the costs of the product or services. Costing includes the techniques and process of ascertaining costs. Cost Accountancy: It is the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability as well as presentation of information for the purpose of decision making. Basic Objectives of costing system: 1 Cost ascertainment: calculation of actual cost of production or services. 2 Cost estimation: calculation of future cost of production or services. 3 Cost control: controlling the costs using various cost control techniques to keep it at the minimum possible extent. Other functions of cost accounting: 1 Cost book keeping: recording of cost according to prearranged classification. 2 Cost analysis: determination of different relationships between cost & various
  2. 3 4 determinants of costs. It involves determining why costs are out of line and fixing of responsibility for the same. Cost comparison: The comparison of the cost of alternative products, activities, methods or areas in the field of production or distribution. Cost planning: cost system or the procedure planning involved in accounting for cost. The basic elements of cost: 1 Material Cost: physical substance 2 Labour Cost: human efforts 3 Expenses: other than material & labour cost The cost elements are divided as follows: Direct Material Direct Labour Direct Ex enses PRIME COST Classification of Cost: Indirect Material Indirect Labour Indirect Ex enses OVERHEADS It means the grouping of the costs according to their common characteristics. Some of the bases of classification are: 1 2 3 4 5 6 7 8 9 By nature of element By functions By relation to cost centre By behaviour By controllability By normality By inventory By time For managerial decision making Classification of cost b nature of element: Cost 1 Material (commodities... physical substance) Meanin Features Exam les
  3. 2 •l Direct Material (becomes a part of prime cost) •2 Indirect Material (forms a part of overheads) Labour (It is a human resource which becomes an essential factor in the process of production.) •l Direct Labour (direct labour cost forms part of prime cost) Materials that can be conveniently identified with & can be directly allocated to a particular product, job or process. Materials that cannot be conveniently identified with and cannot be directly allocated to a particular product, job or process. The labour which can be easily identified with a specific job, contract or work order. i.e. labour engaged in Easily identifiable with a specific job, contract or work order. It varies directly with the volume of output. Not easily identifiable with a specific job, contract or work order. It may or may not vary directly with the volume of output. Can be easily identified with a specific job, contract or work order. It varies It will include basic raw materials and primary packing materials. e.g. milk & cream in ice cream, plastic packing for milk, oil etc, bag for cement, can for tinned food and drink etc. Materials of small value which cannot be identified with a job, process or product such as thread used in stitching, nails in furniture. Stores used by service departments like power house, boiler house. Lubricant oil, grease used for maintenance of machines. Baker in baking unit, Washer in washing unit, Labour on construction contract.
  4. •2 Indirect Labour (indirect labour cost is treated as a part of overheads) converting raw materials into finished goods. The labour which is incurred wholly or specifically for a particular job, work order or contract. The labour that cannot be easily identified with a specific job, contract or work order. i.e. labour not directly engaged in converting raw materials into finished goods. directly with the volume of output. Not easily identifiable with a specific job, contract or work order. It may or may not vary directly with the volume of output. Labour employed in personnel department, Labour employed in security department, labour employed in cost accounting department. .. .to be completed by students in the above format refer to Management Accounting Book (Patankar) or Costing Book. Com onents of total cost Com onent Prime Cost Works Cost or Factory Cost Cost of Production or Cost of goods roduced How to calculate Direct Material + Direct wages/labour + Direct ex enses Prime cost + Factory expenses / factory overheads Works cost + Office expenses Cost of goods sold/ Cost of sales / Total cost Cost of production + Selling & distribution ex enses Cost Sheet: (format): already forwarded to the students. Cost Unit: A unit of product / service / time in relation to which cost may be ascertained. Cost unit may be of two types viz. Units of production and Units of Service. Industr Chemicals Cost unit TonneK s
  5. Interior decoration Shoes Electricit Car Cotton Cement Gas C ets Nursin home Pencils Trans ort Hotel Mines Timber Each •ob Per air KWH Each car Bale Tonne Cubic foot S uare feet Bed er da Per dozen Passen er km / tonne kms Room er da Tonnes of mineral Cubic feet Cost Centre: A cost centre is a location, person or item of equipment for which cost may be ascertained and used for the purpose of control. It refers to a section of the business, to which costs can be charged. The whole organisation is divided into small parts and each section is treated as a cost centre to which cost is ascertained. Types of cost centre: Personal & Functional Personal: Personal (will consist of a person or group of persons) Impersonal (will consist of a location or a group of locations) Functional: Production centre (those centres where actual production work takes place) Service Centre(these centres provide service to production centre and are ancilliary to production) Cost Sheet : Sheet is a document which provides for the assembly of the detailed cost of a cost unit. It is prepared at regular intervals. Purposes: It provides comparative study of the cost of current period with that of the previous period. It represents the total cost as well as per unit cost. It discloses the breakup of total cost into different elements of cost It acts as a guide in fixation of selling prices.
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