Cost accounting Introduction
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.
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.
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.
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.
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.
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.
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.
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.
Objectives of cost accounting • To ascertain cost. • To control cost. • To provide information for decision making. • To determine selling price. • To ascertain costing profit.
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.
Types of Manufacturing • One-off manufacturing: • Small batch manufacturing: • Large volume repetitive operations:
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
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.
Manufacturing and Non-manufacturing Costs Cost incurred in producing a product Vs. Costs associated with planning, designing, marketing, delivering and financing the product