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Learn about cost accounting, analyzing expenses, calculating profitability, and controlling costs. Discover key concepts, such as elements of cost and cost classification, to enhance your financial management skills.
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Cost Accounting Dr. VarshaThakre Associate Professor
Terms • Cost: Cost is the total of all expenses incurred for the production. • Accounting: is a written record of accounts. • Account: A written format of expenses & income. • Cost Accounting: A branch of Accounting which deals with calculation of Total Cost & per unit cost of production.
A) Production of goods/commodities: A process of manufacturing. • The main object is to earn more & more profit. • B) Production of services : To provide better services at a lower cost is the main object and secondary objective is to earn profit. • Expected profit is added to Cost to arrive at selling price of commodity or services.
Fixation of selling price = Cost + Profit = Selling price Rs. 100 + 20 = 120 Rs. 90 + 30 = 120 According to the law of demand if selling price increases demand decreases. If demand decreases sale also decreases. The main object can not be fulfilled i.e. earning more profit. Hence to increase the profit selling price cannot be increased. The best alternative / option is to control the cost reduce the cost and to carry out the manufacturing process. Cost can be controlled reduced, minimized.
Objectives of cost Accounting Two main objectives of cost Accounting:- To calculate total & per unit cost of production, to increase the profitability of the concern: If the no. of units produced / sold are given or known then per unit cost of production can be calculated. b) To control the cost, to minimize the cost: There should be control over the elements of cost.
Elements of Cost Material Labour/wages Expenses Direct Indirect Direct Indirect Direct Indirect Work / Factory overheads Administrative Office Overhead S & D Expenses
Classification of Cost Prime Cost = Direct Material + Direct Wages + Direct Exp. Factory/work Cost = Prime Cost + Factory OH Office Cost/Cost of Production = Factory Cost + Office OH Cost of Sales / Total Cost = Cost of prodn + S & D Exp. Selling price = Total Cost / Cost of Sales + Profit
Important Points :- • 1. No. of units produced / manufactured :- • No. of units sold xxx • + Cl. st. of finished goods in units (+)xxxxxx • Op. st. of finished goods in units (-)xxx • No. of units produced xxx • 2. No. of units sold :- • No. of units produced xxx • + Op. st. of finished goods in units (+)xxx xxx • - Cl. st. of finished goods in units (-)xxx • No. of units sold xxx
3. If profit is charged on Total cost : • Total cost x Rate of profit • profit= • 100 • 4. If profit is charged on selling price: • Total cost x Rate of profit • Profit = • 100 – Rate of profit • 5. Following expenses are not included in cost sheet :- • Interest paid, Tax paid, Loss on sales of fixed asset, goodwill and preliminary expenses written off, commission paid, discount on issue of shares and debentures, cash discount, donation, dividend paid, abnormal debts, abnormal expenses during debentures, etc. • 6. Following incomes are not included in cost sheet:- • Discount received, divided received, Rent received, intt on investment / bank deposit commission received, transfer fees received, profit on sales of fixed assets, profit on sales of investment etc.
