Cost Accounting

Publication, every stake or omission that whitethorn support crept in is not intentional. It whitethorn be taken tick off of that n individually the publisher nor the author will be responsible for for for each one one damage or loss of every kind arising to eachone in every manner on account of such errors and omissions. Leaser Type Seated by Banyan College Printing De initiatement Preface am glad to deliver this book, especially designed to serve the needs of the students. The book has been written charge in mind the general weakness in understanding the inherent purpose of the topic.The book is self-explanatory and adopts the Teach Yourself style. It is based on heading- solve pattern. The lyric poem of book tried to cover all the basic topics of Softw atomic number 18 engineering like Analysis, Project Management, Quality Testing and Designing. Any further procession in the contents of the book by making corrections, omission and cellular inclusion body is ke en to be achieved based on suggestions from the reader for which the author shall be obliged. I ac go to sleepledge special thanks to Mr.. Eraser Banyan, Chairman & Dry. Sandy Banyan, managing claimor (Cad. Banyan Group of Colleges, who is the backbone and main concept go forthr and in any discipline have been constant source of motivation throughout this endeavor, who played an busy role in coordinating the various stages of this endeavourer and spearheaded the publishing grow. I font forward to receiving valuable suggestions from professors of various educational institutions, separate faculty members and the students for approach of the quality of the book. The reader whitethorn feel free to send in their comments and suggestions to the under mentioned address.Author Theoretical QuestionQ. L What do you mean by embody? Anus. apostrophize meaner account of consumption incurred upon manufacturing of an article or providing any value.Q. 2 Q. 3 What do you understand by be. What is meant by make up bill. Anus. re nowadays is the technique and process of de end pointining toll. Anus. approach invoice is the provision of such epitome and classification of disbursement as will enable to ascertain the list represent of any come outicular whole of carre foursomeion.Q. 4 Mention make up of four-spot produce for which evidence for follow audit is issued. Cement perseverance Sugar attention (2) (4) Electric Industry Factor Industry (3)Q. 5 Anus. (1) What is meant by supplementary price? What is opportunity greet? Name four method of termsing. Unit termsing Operating equaling Contract salute Process costing (2) (3) (4) Anus. Supplementary cost is the cost of result an early(a)(prenominal) than direct cost.Q. 6 Q. 7 Anus. The value of opportunity for gone is know as opportunity cost. Anus. (1) Explain speak to Unit? Explain term cost centre? Anus. live unit is a measurement of any goods or utility e. G. Per ton km. Per uni t. Anus. monetary value centre is a localisation or item of any equipment which atomic number 18 connected with an undertaking for which cost are ascertained. Q. II Difference between costing & cost invoice. Anus. 1) be is a dynamic technique in which swops may take organise imagine the cost of fabricationd goods. base more detail- http//www. Group. Com 2) cost take on determination of cost. terms explanation complicate recording expenditure and income. (3) be meaner technique for determination of cost whereas cost bill meaner acceptation of accounting system constitution of cost. Q. Al Give cardinal items which are not include in cost. Anus. Non cost items are profit on barter of fixed asset, goodwill w/o. Discount on issue of deal etc.Q. 12 What is the difference between cost of goods sold and cost of produceion.Anus. Cost of crosswayion meaner prime cost + works overhead + office overheard season cost of goods sold meaner cost of returnion + opening sto ck of E. G. shutdown stock of finished goods.Q. 13 Write two objective of literal book. Anus. (1) (2) control cost of inventory. Provide substantive at right era.Q. 14 What is convention wastage of square? Anus. Normal wastage of somatic meaner any wastage due to linguistic rule reason like evaporation.Q. 1 5 What is abnormal wastage? Anus. Any wastage switch off due to abnormal. Reason like loss by fire, loss by earthquake.Q. 16 What is BBC technique? Anus.It is a technique to control under these genuine classified three parts ABA & C A include spunky value stuff B include. Medium value physical and C include low value material.Q. 17 What is SIT purchase. Anus. Under this quinine no stock maintain and material purchase when having its demand.Q. 18 What is economic army quantity ? Anus. Economic order quantity is that quantity of material where edict & carrying cost minimum.Q. 19 What is meant by wages abstracts? Anus. It is a statement and it include detail of wages prepare by cost discussion section with the suffice of conviction card, wages sheet.Q. 20 What is idle meter? Anus. Idle time meaner no production hour but wages stipendiary for that time. forwards more detail- http//www. Group. ComQ. 21 Name the method of giving lucre to workers. Anus. (1) (2) (3) (4) Time rate method. Piece rate method. Piece rate with guaranteed gestate rate Differential piece rate method. No of cooperation x clench No of workers 100Q. 22 How tug separation rate is computed. Anus. bear on perturbation rate =Q. 23 What do you understand by time strike? Anus. Time interpret is useful is determination of time require by an average worker in a Job.Q. 4 Write the chemical holdula of Halley-weir premium plan. AT X RATE + 30% of TTS x rateQ. 25 What is meant by overhead?Under this clause contract price will diverge in pro bunch to change in price of material travail & other expenses.Q. 33 What is meant by property money? Anus. In occurrence of incomp lete contract a part of the certified work is remunerative by the contracted to contractor. Rest of the amount is cognize as safekeeping money.Q. 34 Mention the plants of industries where process costing method may be utilise. Anus. (1) (2) (3) (4) Chemical industries Mining industries. Water & Gas Industries Electric supplyQ. 37 Define Joint product Anus. Joint product is selfsame(prenominal) graphic symbol of product equal importance & valueCost news reportHarvard communication channel School 9-192-068 Rev. May 1, 1993 DO A drawing Introduction to Cost method of accounting T NO Organizations and animal trainers are almost al slipway elicit in and concerned around cost. Control of past, present, and future be is part of every animal trainers job. In companies that try to earn profits, control of cost directly affects the amount of profit earned. Knowledge of the cost of products or run is indispensable for decisions intimately pricing or product and service mis cellanea. In nonprofit organizations, control of cost influences the aim of serve that kindle be countenanced and the future survival of the organization.Cost accounting systems basin be consequential sources of study for charabancs. For this reason, effective managers understand the strengths and limitations of cost accounting systems and actively inscribe in the evaluation and evolution of cost measurement and anxiety systems. contradictory accounting systems that support the preparation of periodic financial reports, cost accounting systems and reports are not subject to rules or standards such as in the main authoritative accounting principles. Managers are permitted to exercise as much creativeness and ingenuity as they wish in the quest for culture on be.As a result, there is much variety in cost accounting systems used in assorted companies and some(a)times even in different parts of the same organization. PY CO This brief introduction to cost accounting will review the principal uses of cost data, go forth some verbiage for cost accounting, and present several of the questions managers have to answer in shrewd or using a cost accounting system. Its purpose is to provide the beginner with some vocabulary and ideas to use in learning some and exploring how cost management systems are designed and used by managers.While some a(prenominal) of the references are to products and manufacturing environments, the vocabulary and concepts are equally applicable to services. Some Uses of teaching About cost training about cost is used for two purposes in most organizations. Cost accounting systems provide information for evaluating the motion of an organizational unit or its manager. They also provide a federal agency for estimating the costs of units of product or service that the organization may invent or provide to others. Professor William J. Bruns, Jr. prepared this note as the basis for class discussion. Copyright 1991 by the President and Fellows of Harvard College. To order copies, song (617) 495-6117 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the licence of Harvard Business School. 1 192-068 A Brief Introduction to Cost Accounting Performance MeasurementDO Reports on the costs incurred by part of an organizationdepartment or a division, for exampleare one means by which efficiency and effectiveness can be evaluated. By comparing true costs to those that were expectedto standard costs or budgeted coststhe mark to which costs have been controlled can be judged. Deviations from expectationsvariancescan be identified, evaluated, and discussed by managers. If needed, corrective actions can be taken or expectations can be modified to incorporate previously unexpe cted efficiencies.Performance measurement reporting is unremarkably periodic and systematic. cost are designate to parts of an organization that are identified as cost centers. When managers are held accountable for the costs incurred in a cost center, they are sometimes called responsibility centers. Performance reports provide information on the achievement of established objectives, efficiency of operations, and opportunities for cost control or cost reduction. Performance reports are used for both information and performance measurement and evaluation. T NO Product cost and the Cost of ServicesInventory cost In manufacturing companies, product costs must(prenominal) be calculated to determine the cost of items transferred from work-in-process to finished goods inventory. To satisfy the demands created by the cost concept used in financial reporting, a cost accounting system must measure all of the costs of the manufacturing process and assign some part of those costs to each unit of product. The costs of obtaining, maintaining, and managing the manufacturing facility need to be added to the costs of material and productive take that each unit requires.The former costs are called mediate costs, and the latter are called direct costs. Generally accepted accounting principles require that inventory cost includes a fair parting of fall manufacturing costs, including validatory costs. In practice, there is broad variation in how indirect costs are assigned to products. Information on costs is indispensable for analyzing the profitability of a product or product line. Product cost information allows managers to evaluate contribution boundthe difference between price and variable costsand gross allowancethe difference between price and total product costs.Information about changes, marketing, and dispersal costs allows managers to evaluate the profitability of a product or product line. Without good information about costs, managers have no way to disher net income with actions or products about which they make decisions and over which they exercise control. gainfulness summary PY CO In companies that offer more than one product or service, information about costs is a key to managing the mix of products or services offered to customers or clients.With cost and profitability information, a manager can direct sales and marketing effort to the most bankable products. Unprofitable products can be eliminated, repriced, or bundled with more profitable products. The importance of product line decisions to future profitability requires confidence that product costs have been accurately determined. Product mix Although prices are determined by market forces of supply and demand, product differentiation and marketing offer many managers some degree of latitude in setting prices.Product costs and trends in product costs oft provide signals to managers that prices should be changed. In particular, a change in the cost of a critic al material or component may signal the need to reconsider the prices asked for products. Pricing 2 A Brief Introduction to Cost Accounting 192-068 DO Cost of service Many products require the seller to provide additional services to customers. In such cases, information about the cost of services is as important to managers as product costs.The same is true for managers of companies or organizations that provide only services. Unless the cost of service is measured, there is no way to know if providing the service is profitable or not and whether changes in pricing or marketing strategy are needed. Cost Behavior T NO Basic knowledge about cost behavior is a prerequisite for understanding, using, or designing cost accounting or cost management systems. The level of cost can be a function of either or both the mickle of action or time when the cost is incurred.Because prices of material, labor, and other resources change as time passes, and because time allows changes in manufactu ring methods or service delivery, comparing costs at two points in time can be informative about efficiency. However, understanding the effect of changes in great deal on costs is essential to measuring, analyzing, and using information about costs for both performance measurement and product costing. Relation of cost to Volume If a guild changes the amount of product or service it provides to customers or clients, its total costs will usually change as well.If more product is fictionalizationd and sold, then we should expect the grittyer loudness to cause costs to increase. However, in many instances, the increase in costs will not be dimensional to the increase in product volume. To understand why, the concepts of variable costs and fixed costs must be understood. PY CO Variable costs A cost which changes in set proportionality with volume is called a variable cost. That is, if volume increases by 50%, a variable cost will increase in total by 50% as well. Materials used to create a product are a common example of a variable cost item.The total cost of materials to manufacture 20 units is double the cost to manufacture 10 units. Nonvariable costs A cost that does not vary at all with volume is called a nonvariable, or fixed, cost. Over time the level of a fixed cost may change, but the change is breakaway of the volume of activity. Building rent is usually a nonvariable cost. The rent paid is independent of the number of units of product or service produced in the make or the number of customers served. Nonvariable costs can often be changed by management decisions, but they do not change simply because the volume of activity changes.Semivariable costs Many costs include a conclave of variable costs and nonvariable costs. The total amount of these costs varies in the same direction as volume, but less than proportionately with changes in volume. sometimes semivariable costs can be separated into a fixed portion and a variable portion by isolating e lements of the cost. The total cost of driving an automobile is semivariable with respect to the number of miles driven, but the cost of gasoline, oil, tires, and tending may be variable, whereas insurance and registration fees are probably fixed.Often costs are assumed to be variable when they real(a)ly are incurred in chunks. Such costs, also known as step-function costs, are fixed for a range of volume of production but change in a chunk when volume drops below or exceeds the limits of the relevant range of volume. The costs of stockroom employees are often chunky. As volume of inventory or products increases, one stockroom employee may be able to handle material and finished goods until the volume level squat costs 3 192-068 A Brief Introduction to Cost Accounting ncreases to the point where another(prenominal) employee must be added. The new staffing level will then be fit even as volume rises further until another step is reached. Chunky costs and costs that are not easily related to volume measures usually require special analysis and management. DO Accounting for Costs Classifying Costs The word cost is used many different ways in accounting and by managers. For clarity, other words are often attached to the word cost to enhance its meaning. In cost accounting, costs are usually classified into two categories direct costs and indirect costs.Direct costs can be specifically traced to or are caused by a product, project, organizational unit, or activity. Materials specifically used in the manufacture of a product are an example of a direct cost. Labor specifically employed to provide a service would be another example. Many direct costs are variable costs, but nonvariable costs can also be direct costs if they can be traced directly to a project, organizational unit, or activity. Direct costs T NO When a cost cannot be traced directly to a mavin product, project, organizational unit, or activity, it is classified as an indirect cost.The rental cost of a factory edifice making more than one product is an indirect cost with respect to each product. There is no viable way to associate specifically an indirect cost with an individual unit or batch of products. Indirect costs Indirect costs are included in overhead cost, or burden. To account for the full cost of manufacturing products, some portion of the overhead cost must be associated with each unit of product. The methods by which overhead costs are associated with products or services comprise the essence of most cost accounting systems. PY COAccounting for Direct Costs A simplified cost flow chart for a manufacturing party is shown in Exhibit 1. Resources are acquired for cash or on faith and are classified as materials, kick inroll, or overhead. Payroll, which is classified as indirect cost, becomes part of overhead. In the production process, material, labor, and overhead cost becomes the cost of work-in-process inventory. When finish, work in process becomes finishe d goods and, later, cost of goods sold. It is easy to understand the accounting for direct costs such as material and productive labor.As material is converted to product by the effort of production labor, the costs of material used and labor can be associated with products. As products are completed and transferred to finished goods and cost of goods sold, these direct costs are transferred with them. All the cost accountant has to do is keep track of how much material and labor cost is used in producing each unit of product. (Actually, this is a junior-grade more complicated than it may sound here, but this brief definition captures the essence of the accounting process for these direct costs. ) 4 A Brief Introduction to Cost Accounting 192-068Accounting for Indirect Costs DO Accounting for indirect costs is more complicated than accounting for direct costs. Costs must be amass and associated with activities before they can be assigned to products. The relationship between expe nditures or costs and products or services is often far from obvious. Assignment to activities is often based on arbitrary decisions about the possible relationships between the reason for an expenditure and an activity. For example, rent for a building that houses both manufacturing and sales activities might be assigned to each activity in the same ratio as the floor space work by each.Then, the manufacturing rent cost may be assigned to products fabricate using a measure of volume or some other measure of effort or activity. Almost all cost accounting systems use a two-stage procedure for assigning indirect costs to products or other cost objects. First, costs are assigned to cost centers, or cost pools. Second, costs are assigned from each pool to products using cost drivers. The concept of a cost driver is based on the idea that products drive the consumption of resources. T NO The first question that the cost accounting system occasion has to answer concerns how many cost c enters to use.Using more cost centers than necessary adds abstruseity and cost to the cost accounting process itself. But using too few cost pools can create a risk that assigned costs will have little relationship to the activities and products that caused the cost to be incurred and resources to be consumed. In a manufacturing plant, the number of cost pools needed may be as mild as one if machines, labor, and products are homogenous, or the number needed may be much larger if there is greater diversity in activities or products. In some manufacturing plants, each department, or even each machine, may be treated as a separate cost center. PY COThe second set of questions the cost accounting system designer has to answer concerns how to assign costs to each cost center or cost pool. Expenditures for indirect costs may be assigned based on direct labor cost, floor space, headcounts, or direct costs. More complex systems will attempt to implement as much direct charging to each cos t pool as possible by using actual measures of the resources used by each cost center. The third set of questions the cost accounting system designer has to answer concerns how to assign the costs collected for each cost center to the products that are manufactured by or pass through that center.Often the costs are assigned in proportion to the use of a resource that is easily measured. Each unit product may be assigned the same proportion of indirect cost as it consumes labor time, labor cost, machine time, or material cost, for example. given(p) the number and complexity of choices facing the cost accounting system designer and the fact that there are no constraining generally accepted principles of cost accounting, it should be obvious that there is great diversity in the cost accounting systems used by different organizations.A new manager or employee has no choice but to learn about the systems the company uses before using the cost information the system has produced. Every m anager has to be continually alert to be sure the cost information available is the right information for the decision or task at hand. 5 Material Inventory Payroll Other Asset and financial obligation Accounts Overhead PY CO Cash Acquiring Resources Cost Flow chart for a Manufacturing Company Work-in-Process Inventory Production Finished Goods Inventory T NO Exhibit 1 192-068 Cost of Goods Sold Sale of Products DO -6-Cost AccountingPublication, any stake or omission that may have crept in is not intentional. It may be taken note of that neither the publisher nor the author will be responsible for any damage or loss of any kind arising to anyone in any manner on account of such errors and omissions. Leaser Type Seated by Banyan College Printing Department Preface am glad to present this book, especially designed to serve the needs of the students. The book has been written keeping in mind the general weakness in understanding the sound concept of the topic.The book is self-expla natory and adopts the Teach Yourself style. It is based on question-answer pattern. The diction of book tried to cover all the basic topics of Software plan like Analysis, Project Management, Quality Testing and Designing. Any further approach in the contents of the book by making corrections, omission and inclusion is keen to be achieved based on suggestions from the reader for which the author shall be obliged. I acknowledge special thanks to Mr.. Eraser Banyan, Chairman & Dry. Sandy Banyan, film director (Cad. Banyan Group of Colleges, who is the backbone and main concept provider and also have been constant source of motivation throughout this endeavor, who played an active role in coordinating the various stages of this endeavourer and spearheaded the publishing work. I look forward to receiving valuable suggestions from professors of various educational institutions, other faculty members and the students for gain of the quality of the book. The reader may feel free to se nd in their comments and suggestions to the under mentioned address.Author Theoretical QuestionQ. L What do you mean by Cost? Anus.Cost meaner account of expenditure incurred upon manufacturing of an article or providing any service.Q. 2 Q. 3 What do you understand by costing. What is meant by cost accounting. Anus. Costing is the technique and process of determining cost. Anus. Cost accounting is the provision of such analysis and classification of expenditure as will enable to ascertain the total cost of any particular unit of production.Q. 4 Mention name of four product for which order for cost audit is issued. Cement Industry Sugar Industry (2) (4) Electric Industry Factor Industry (3)Q. 5 Anus. (1) What is meant by supplementary cost? What is opportunity cost? Name four method of costing. Unit costing Operating costing Contract costing Process costing (2) (3) (4) Anus. Supplementary cost is the cost of product other than direct cost.Q. 6 Q. 7 Anus. The value of opportunity for gone is known as opportunity cost. Anus. (1) Explain Cost Unit? Explain term cost centre? Anus. Cost unit is a measurement of any goods or service e. G. Per ton km. Per unit. Anus. Cost centre is a posture or item of any equipment which are connected with an undertaking for which cost are ascertained. Q. II Difference between costing & cost accounting. Anus. 1) Costing is a dynamic technique in which changes may take pose control the cost of manufactured goods. Fore more detail- http//www. Group. Com 2) Costing include determination of cost. Cost accounting include recording expenditure and income. (3) Costing meaner technique for determination of cost whereas cost accounting meaner bankers acceptance of accounting system of cost. Q. Al Give two items which are not include in cost. Anus. Non cost items are profit on sale of fixed asset, goodwill w/o. Discount on issue of share etc.Q. 12 What is the difference between cost of goods sold and cost of production.Anus. Cost of product ion meaner prime cost + works overhead + office overheard part cost of goods sold meaner cost of production + opening stock of E. G. climax stock of finished goods.Q. 13 Write two objective of material control. Anus. (1) (2) control cost of inventory. Provide material at right time.Q. 14 What is normal wastage of material? Anus. Normal wastage of material meaner any wastage due to normal reason like evaporation.Q. 1 5 What is abnormal wastage? Anus. Any wastage originate due to abnormal. Reason like loss by fire, loss by earthquake.Q. 16 What is BBC technique? Anus.It is a technique to control under these material classified three parts ABA & C A include high value material B include. Medium value material and C include low value material.Q. 17 What is SIT purchase. Anus. Under this quinine no stock maintain and material purchase when having its demand.Q. 18 What is economic order quantity ? Anus. Economic order quantity is that quantity of material where ordination & carrying cost minimum.Q. 19 What is meant by wages abstracts? Anus. It is a statement and it include detail of wages prepare by cost department with the help of time card, wages sheet.Q. 20 What is idle time? Anus. Idle time meaner no production hour but wages paid for that time. Fore more detail- http//www. Group. ComQ. 21 Name the method of giving wages to workers. Anus. (1) (2) (3) (4) Time rate method. Piece rate method. Piece rate with guaranteed pay rate Differential piece rate method. No of cooperation x bobby pin No of workers 100Q. 22 How labor separation rate is computed. Anus. Labor disturbance rate =Q. 23 What do you understand by time study? Anus. Time study is useful is determination of time require by an average worker in a Job.Q. 4 Write the figure of Halley-weir premium plan. AT X RATE + 30% of TTS x rateQ. 25 What is meant by overhead?Under this clause contract price will change in proportion to change in price of material labor & other expenses.Q. 33 What is meant by r etention money? Anus. In case of incomplete contract a part of the certified work is paid by the contracted to contractor. Rest of the amount is known as retention money.Q. 34 Mention the names of industries where process costing method may be used. Anus. (1) (2) (3) (4) Chemical industries Mining industries. Water & Gas Industries Electric supplyQ. 37 Define Joint product Anus. Joint product is same lineament of product equal importance & value