MANAGEMENT
ACCOUNTING
Dr. Tripti Tripathi
Meaning of Cost
Accounting
Cost Accounting is the
process of accounting for
cost. Costing is a technique
and process of ascertaining
cost. It
is a
system of
determining
the
cost
of
products or services.
Costing Vs Cost
Accountancy
Costing
It is the determination
of cost by using any
method
like
airthematic
process,
memorandum
statements etc. It is the
finding out the cost of
the
products
or
services
by
any
technique or method.
Cost accountancy
It denotes the formal
accounting mechanism by
means of which cost are
ascertained by recording
them in the books of
accounts. It includes the
principles,
conventions,
techniques and systems
which are employed in a
business to plan and
control the utilisation of
resources.
Conti..
It is also a practice because a cost
accountant constantly endeavor for reducing
cost , present cost data in a condensed but
informative way.
Scope
Cost
Cost
Conti
Cost Audit It is the verification of cost
Objectives of Cost
Accounting
Ascertaining Cost
Determining Selling Price
Measuring and Increasing efficiency
Cost Control and Cost Reduction
Cost Management
Ascertaining Profits
Providing basis for managerial decision
making
Financial Accounting
Cost Accounting
Purpose
Statutory
Requireme
nts
Maintenance of these
accounts is voluntary
except in certain
industries where it
has been made
obligatory to keep
records under
companies Act.
Analysis of
Cost and
Conti..
Basis
Financial Accounting
Cost Accounting
Periodicity
of
reporting
It is a continuous process
and may be daily, weekly,
monthly, etc.
Control
Aspect
Historical
and
predetermin
ed costs
It is concerned almost
exclusively with historical
records. The historical
nature of financial
accounting can be easily
understood in the context
Conti
Types of
transactions
recorded
Types of
statements
prepared
It prepares general
purpose statements like
profit and loss accounts.
It prepares special
purpose statements
like reports on loss of
materials, Idle Time
Report
Cost accounting
system uses
quantitative cost
data that can be
measured in
Management
accounting uses both
quantitative and
qualitative data. It
also uses those data
Conti..
S.No.
Cost Accounting
Management
Accounting
Cost accounting
system uses
quantitative cost data
that can be measured
Management
accounting uses both
quantitative and
qualitative data. It
Conti..
3
Determination of
cost and cost
control are the
primary roles of
cost accounting.
Efficient and
effective
performance of a
concern is the
primary role of
management
accounting.
Success of cost
accounting does not
depend upon
management
accounting system.
Success of
management
accounting depends
on sound financial
accounting system
and cost accounting
systems of a concern.
Cost-related data as
Management
obtained from
accounting is based
financial accounting is on the data as
Conti
7
Cost accounting
reports are useful
to the management
as well as the
shareholders and
creditors of a
concern.
Management
accounting
prepares reports
exclusively meant
for the
management.
Principals of cost
accounting and
financial accounting
are used in
management
accounting.
Conti..
10
Cost accounting is
restricted to costrelated data.
Management
accounting uses
financial
accounting data as
well as cost
accounting data.
Methods of Costing
Job Order Costing In this case the cost of each job is ascertained
separately, applies where work is undertaken to customers special
requirements like motor workshop, printing press etc.
Batch Costing- A batch may represent a number of small orders passed through
factory in each batch. Each batch here is treated as a unit of cost and thus
separately coasted. Here cost per unit is determined by dividing the cost of the
batch by the number of units produced in the batch.
Conti
Contract Costing- Here the cost of each
Cost Concepts
A cost is composed of three elements, i.e
Indirect
Cost
Direct
Cost
D.
Material
D.Labour
D.
Expenses
Ind.
Material
Ind.
Labou
r
Ind.
Expen
ses
Material Cost
It is the cost of commodities supplied to an
undertaking.
It includes cost of procurement, freight inward
etc. directly attributable to the acquisition.
It is of two types
A) Direct Material
B) Indirect Material
Direct Material
Direct Material Cost is that cost which
Indirect Materials
These are those materials which cannot
Labour Cost
This is the cost of remuneration of the
Direct Labour
Direct labour cost consists of wages paid to
Indirect Labour
It cannot be convinently identified
Expenses
All cost other than material and
Direct Expenses
Direct expenses are those expenses
Indirect Expenses
All indirect costs, other than indirect materials
e.g. Rent
lightening etc.
and
rates,
depreciation,
Prime Cost
Direct material+ Direct Labour + Direct
expenses
Over Head
This is the aggregate of Indirect Material cost,
Production Overheads
These are those overheads which are
factory
Indirect Labour- Works Managers salary,
wages of factory Sweeper
Indirect Expenses- Factory rent, dep. of plant
COST- SHEET
It is a statement which is prepared
Elements of cost
Prime cost
Overheads
Direct
Direct
Direct
Material labour expenses
Indirect
Indirect
Indirect
Material
Labour
Expenses
Factory
Overheads
o
Office &
administration
overheads
PROBLEM-1
1.
= Rs. 40,000
+ Rs.30, 000 + Rs. 25,000
= Rs. 95,000
Calculation of raw material consumed:Raw material consumed = Opening stock of material + purchases
Direct wages
= Rs20, 000
6.Prepare cost sheet in the book of M. B. Rehman from the following particulars.
Assuming that all products manufactured and sold, what should be the selling price be fixed to obtain
a profit of 20% on selling price.
Inventories
Opening Closing
Finish goods Rs 1,100 Rs 950
Work in progress Rs 700 Rs 800
Raw materials Rs 900 Rs 950
You are required to prepare a cost sheet from the above showing:The cost per unit
Cost per unit sold and profit for the period
and Rs 8,000)
3. Prime cost
- Rs 1, 85,000
Current manufacturing cost
- Rs 2, 22,000
Total goods processed during the period
- Rs 2, 39,500
Works cost- Rs 2, 15,000
Find factory overheads, opening and closing stock of work in progress
(Ans. Rs 37,000, Rs 17,500 and Rs 24,000)