Slide 1

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 2

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 3

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 4

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 5

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 6

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 7

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 8

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 9

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 10

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 11

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 12

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 13

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 14

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 15

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 16

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 17

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 18

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 19

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead


Slide 20

Cost Accounting







CA is a formal system of accounting for
costs in the books of accounts by means
of which costs of products and services
are ascertained and controlled.
Cost means “the price paid for something”
Cost ascertainment is computation of
actual costs incurred
Cost estimation is a process of
predetermining costs of goods and
service.

Objectives of Cost Accounting






Ascertainment of cost
Control of cost
Guide to business policy such as make or
buy, introduction of new product etc
Determination of selling price

CA and FA - Comparison









Purpose
Statutory requirements
Analysis of cost and profit
Periodicity of reporting
Control aspect
Historical and predetermined costs
Format of presenting information
Types of transactions recorded

Cost Centre


Cost center is a location, person, or item of

equipment (or group of these) for which costs
may be ascertained and used for the purpose of
control

It refers to a section of the business to
which costs can be charged.
 Types:


Personal and Impersonal cost centre
Production and Service cost centre

Cost Unit






Cost units are the things, that the business is set
up to provide, of which cost is ascertained.
Unit of product, service or time in relation to
which cost may be ascertained or expressed
Types:




Units of production such as a ream of paper, a tonne
of steel, a meter of cable etc.
Units of services such as passenger miles, consulting
hours, room per day, bed per day

Methods of costing






It refers to the techniques and processes
employed in the ascertainment of costs
Choice of the method depends upon the
type and nature of manufacturing activity
Types: Broadly,
Job costing or job order costing
 Process Costing
Other methods are variations of one of these
methods.


Methods of costing - Types





Job Order Costing – Applies where work is

undertaken to customers special requirements.
Contract Costing or Terminal Costing: It is
same as Job order costing; however, job is small
and contract is big contract. Contract is of long
duration and may continue for more than a
financial year.
Batch costing: Cost of a batch or group of
identical products is ascertained; each batch of
products is a cost unit for which costs are
ascertained.

Methods of costing – Types…..






Process Costing – Applies to a context where

there is a continuous process. Costs are
accumulated for each process. And then total
cost of a process is divided by the number of
units produced to arrive at cost per unit.
Operations Costing: Involves cost
ascertainment for each operation.
Operating or services costing: It is applied
to services; cost units are passenger –kilometer,
room per day, bed per day.

Methods of costing – Types…..




Multiple or composite costing – Application

of more than one method of costing in respect
of the same product. Used in industries where a
number of components are separately
manufactured and then assembled into a final
product.
Single, output or unit costing: Applied to a
context where output produced are identical, the
cost per unit is found by dividing the total cost
by the number of units produced. E.g. Steel
output is identical but differentiated by grades.

Techniques of costing –
Types…..


Standard costing – Standard cost is

predetermined as target of performance and
actual performance is measured against the
standard.


Budgetary control: By comparing actual with
planned / budgeted performance



Marginal costing: Only variable cost is

allocated to individual cost centers or cost units

Techniques of costing –
Types…..


Total Absorption costing – Both fixed and
variable costs are charged to products.



Uniform Costing: It is not a technique but a

situation wherein several undertakings use the
same costing principle and practices.

Elements of costs - Materials


Material cost : cost of commodities supplied to an
undertaking
Direct materials cost: those costs which are
incurred for and conveniently identified with a
particular cost unit, process or department.
Ex: cost of raw material

Indirect materials cost: those costs which cannot
be conveniently identified with a particular cost unit,

process or department.

Ex: cost of material that are inexpensive but may or may not
physically become part of the finished goods

Elements of costs – Labour cost


Labour cost : cost of remuneration (wages,
salaries, commissions, bonuses, etc etc) of the
employees of an undertaking
Direct labour cost: wages paid to workers
directly engaged in the production process.
Eg: Wages of machine operator

Indirect labour cost: those wages which cannot

be conveniently identified with a particular cost unit,

process or department

Elements of costs – Expenses


Expenses: The cost of services provided to an
undertaking

Direct Expenses: those expenses which can be

identified with and allocated to cost centers or units.
.
Eg: Royalty paid, depreciation of a plant used
Indirect Expenses: All indirect costs other than
indirect materials and labor. They cannot be directly
identified with a particular job, process or work order
and are common to cost units or cost centers
Ex: Rent and rates, lighting and power

Elements of costs – Price cost




Direct Material +
Direct labour +
Direct Expenses

Elements of costs – Over heads




Indirect Material +
Indirect labour +
Indirect expenses

Overheads are divided into
a.
Production overheads
b.
Office and administration overheads
c.
Selling and distribution overheads

Elements of costs – Production

overheads







Indirect Material such as coal, oil grease,

stationary in factory office+
Indirect labour such as work manager’s salary,
salary of factory office staff, salary of inspector
and supervisors, watchman, sweeper
Indirect Expenses such as factory rent,
depreciation of plant, repairs and maintenance
of plant, insurance of factory building, factory
lighting and power, internal transport expenses

Elements of costs – Office and

administration overheads



Indirect Material such as stationary used in
administration office, postage, etc



Indirect labour such as salary of office staff,

salary of of MD, Directors, watchman, sweeper


Indirect Expenses such as office rent,

insurance of office building, office lighting and
power, telephone, depreciation of office
furniture, office a/c, sundry office expenses

Elements of costs – Selling and

distribution overheads





Selling cost: cost of seeking to create and stimulate
demand and of securing orders such as ads, samples
and free gifts, salaries of salesmen
Distribution cost: cost of making packed product
available for dispatch and returning of empty packages
for reuse
Indirect Material such as stationary used in sales

office, packing mat, cost of samples, price list, oil for
delivery vans
Indirect labour such as salary of sales staff, salary of
of MD, Directors, watchman, sweeper
Indirect Expenses such as advertising, traveling
expenses, showroom expenses, carriage outwards, rent

Components of total cost
1 Prime Cost
 2. Works cost or factory cost


Prime cost + Factory Overheads
 Cost

of production

Work cost + Administration Overheads
 Total

cost or cost of sales

Cost of production + Selling and
distribution overhead