COST ACCOUNTING

COST ACCOUNTING

1. Advantages of Cost Accounting

   • they are
     • Helpful to government
     • Classification and sub division of cost
     • Guidance for future production policies

2. Concepts of Cost Accounting

   • cost
   • Expenses
   • Loss
   • cost center: Each cost center is responsible for all its activity and cost
     • Personal and Impersonal Cost Centers
       • A group of persons in an organization responsible as a whole for a group activity is called a personal cost center
     • Operation and Process Cost Centers
     • Product and Service Cost Centers
   • Profit Center
     • Profit centers set targets for cost centers and delegates responsibilities to cost centers.
   • cost drivers
   • Conversion Cost: The cost required to convert raw material into product is called conversion cost.
   • Contribution Margin: Contribution margin is the difference between sale price and variable cost.

3. Definition of Cost Accounting

   • Is the application of accounting principles of methods and cost calculation. And the techniques in cost determination and the analysis of savings

4. Cost Accounting versus Financial Accounting: Both cost accounting and financial accounting help the management formulate and control organization policies

5. Classification of Cost

   • By Nature: In this type, material, labor and overheads are three costs, which can be further sub-divided into raw materials, consumables, packaging materials, and spare parts etc
   • By Relationship with Accounting Period: Classifications are measured by the period of use and benefit
   • By Association with the Product
     • Product cost: Product cost is identifiable in any product. It includes direct material, direct labor and direct overheads
     • Time/Period base cost : Selling expenditure and Administrative

6. elements of cost

   • Direct or Indirect Materials
   • direct labor
   • Statement of Cost

7. Cost Control and Cost Reduction

   • Cost Control Conceptually, accounting is the discipline that provides information on which external and internal users of the information may base decision that result in the allocation of economic resource in society
   • Cost Control
     • Overheads Control
     • Labor Control
     • Material Control
     • Standard costing
     • Budgetary Control
     • Productivity and Accounting Ratios
   • Requirements for Successful Cost Control
     • A plan and a set of well-defined responsibilities to all executives are essential.
     • A fixed responsibility, in case of deviation between targeted and actual
     • Highlights of good and bad
     • Reward for good performances and Punishment for the poor ones.
   • cost reduction
     • Reduction of cost should be in the following manner:
       • Volume of production should be same but cost of expenditure should be reduced
       • Without changing level of production there should be increase in production.
   • Cost Reduction Program Followings are the essentials of a cost reduction program:
     • Cost reduction program should be according to requirement of the company.
     • Cost reduction program should be real and permanent.
     • Employees should be rewarded for their participation in cost reduction program and for giving innovative ideas related to this program.

8. Tools and Techniques of Cost Reduction

   • The following tools and techniques are used to reduce costs: Budgetary Control , Standard Costing , Simplification and Variety Reduction, Planning and Control of Finance, Cost Benefit Analysis Financial Accounting, Value Analysis, Contribution Analysis, Job Evaluation and Merit Rating, Improvement in Design, Material Control, Labor Control, Overhead Control, Market Research

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