Need of Cost Accounting

Cost accounting information is maintained for management persons or managers. The managers are taking decisions for their own company or organization; so there is no need for the information to be comparable to similar from other company or organizations. Cost accounting term or information is used mainly in financial accounting information, the main concern about managers for taking decisions. The cost-accounting system is the result of decisions made by managers of an organization or company and the environment in which they make them.

Definition of Cost Accounting

A accounting method in which all costs incurred in carrying out an activity and accomplishing a purpose are classified, collected, and recorded. The data is then analyzed and summarized and to arrive at a selling price or to determine where savings are possible.

In contrast to cost accounting considers money as the economic factor of production.

Cost Accounting is an important subject that deals with decision for cost control, external reporting, and internal reporting in effective and efficient manner. As name implies cost accounting is a process of accounting for cost. The process of cost accounting begins with recording of income , expenditure and preparation of statistical data. Cost accounting is an art of determining cost.

1. Objectives of cost accounting

a) Cost control
b) Stimulating cost consciousness
c) Ascertaining product until cost
d) Determining Profit and loss
e) Inventory Valuation

2. Cost Accounting and its functional activities

a) Cost Book Keeping
b) Cost Analysis
c) Cost Control
d) Cost Comparison
e) Cost funding

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The main chapters of cost accounting

a) Concept and Scope of Cost Accounting
b) Cost Classification and Flows
c) Material Costing and Control
d) Labor Costing and Control
e) Factory Overhead Costing and Control
f) Costing Systems
g) Standard Costing
h) Marginal Costing and Break-even analysis
i) Marginal & Absorption Costing

• Classification of costs

  • Natural classification

  • By Product

  • By Period

  • By behaviour

  • By departments

  • Common or joint costs

  • For planning and control

  • For analytical processes

• Marginal and absorption costing

  • External and internal reporting

  • Variable costing

  • Absorption costing

  • Comparison of their impact on profit

  • Arguments in favour of variable costing

  • Arguments in favour of absorption costing

• Standard costing and variance analysis

  • Operation of standard costing system

  • Establishing cost standards

  • Types of cost standards

  • Material variances

  • Labour variances

  • Factory overhead variances

  • Mix variances

  • Yield variances

  • Sales variances

• Budgeting

  • Budgeting process

  • Master budget

  • Zero based budgeting

  • Fixed budgets

  • Flexible budgets

  • Activity based budgeting

  • Rolling/ continuous budgeting

  • Program planning and budget system (PPBS)

• Process costing

  • Features of process costing

  • Process costing when all output is fully complete

  • Ending work in progress

  • Beginning work in progress

  • Weighted average method

  • FIFO method

  • Normal losses

  • Abnormal losses/ gains

  • By product and joint product costing

• Job order costing

  • Difference b/w process and job order costing

  • Cost system (actual or standard)

  • Cost accounting procedure for materials

  • Cost accounting procedure for labour

  • Cost accounting procedure for FOH

  • Accounting procedure for jobs completed and products sold

• Divisional performance measurement

  • Profit centres and investment centres

  • Advantages and disadvantages of divisionalization

  • Return on investment

  • Residual income

  • Economic value added

• Transfer pricing

  • Purpose of transfer pricing

  • Market based transfer prices

  • Marginal cost

  • Full cost

  • Cos plus a mark-up

  • Negotiated

  • Proposals for resolving transfer pricing conflicts

  • Domestic transfer pricing recommendations

  • International transfer pricing

• Activity based costing

  • Inadequacies of traditional costing systems

  • Introduction of ABC

  • Objectives of ABC

  • Steps in implementing ABC system

  • Advantages and disadvantages of ABC