Cost accounting

1. Cost accounting Introduction

2. Introduction • In today’s business world, the resources available are very scarce. • Hence, every business unit must strive hard to obtain maximum output with the available input in order to ensure the optimum utilization of scarce resources. • The value of input is measured against the value of output. • In the present era of cut-throat competition, the need to study this subject is growing very fast.

3. Meaning of Cost • Cost is the value of economic resources used as a result of producing or doing a thing. • measurement , in monetary terms, of the amount of resources used for the purpose of production of goods or rendering services.

4. Cost Accounting • A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment.

5. Cost accounting is often used within a company to aid in decision making. • Cost accounting can be most beneficial as a tool for management in budgeting and in setting up cost control programs, which can improve net margins for the company in the future. 

6. Cost Accounting • Cost accounting is the process of accounting for cost. • Cost accounting is generally concerned with internal reporting for management requirement. • The development of cost accounting is of recent origin.

7. Costing is a tool to determine the cost of products or service. • Cost accounting – analysis and classification of costs or expenditure. • Cost accountancy – application of costing and cost accounting principles.

8. Meaning of cost unit & cost center • A cost unit is a unit of product, service or time in terms of which costs are ascertained or expressed. • A cost centre is a location, person or item of equipment for which costs are ascertained & used for the purpose of cost control.

9. Meaning of cost accountancy • It is a wider term than cost accounting. • CIMA, london defines cost accountancy as “ the application of costing & cost accounting principles, methods & techniques to the science , art & practice of cost control & ascertainment of profitability. It includes the presentation of information derived there from for the purpose of managerial decision –making.

10. Thus cost accountancy includes.

11. Objectives of cost accounting • To ascertain cost. • To control cost. • To provide information for decision making. • To determine selling price. • To ascertain costing profit.

12. Costing for Manufacturers • Manufacturing Firms: Businesses purchase raw materials and convert them into finished product in order to sell them to other manufacturers, retailers and wholesalers.

13. Types of Manufacturing • One-off manufacturing: • Small batch manufacturing: • Large volume repetitive operations:

14. One-off manufacturing:

15. Small Batch Manufacturing

16. Large Volume Repetitive Operations

17. Manufacturing business’ inventory • Raw materials: the components used in the production process to produce finished goods. • Work in Progress (WIP): goods where production has commenced but the goods have not been completed or finished. • Finished Goods: Goods are complete and available for sale

18. Cost Object • Everything that costs!! • A cost object is often a product or department for which costs are accumulated or measured. - what costs are there in producing a product? A cost object can also be a customer, a machine, a group of machines, a group of employees, etc.

19. Cost classification

20. Direct and Indirect Costs

21. Variable and Fixed Costs

22. Manufacturing and Non-manufacturing Costs Cost incurred in producing a product Vs. Costs associated with planning, designing, marketing, delivering and financing the product