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Cost Accounting: Reference Books: Cost Accounting - Horngren Cost Accounting - M N Arora

The document discusses key concepts in cost accounting including: 1. Cost accounting tracks and analyzes current and future costs to determine the cost of products, services, and guide business decisions. 2. It addresses limitations in financial accounting like not providing performance analysis or cost control. 3. Cost accounting involves classifying, recording, and allocating costs appropriately to determine cost of goods/services and profitability.

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Wipinson Wilson
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760 views

Cost Accounting: Reference Books: Cost Accounting - Horngren Cost Accounting - M N Arora

The document discusses key concepts in cost accounting including: 1. Cost accounting tracks and analyzes current and future costs to determine the cost of products, services, and guide business decisions. 2. It addresses limitations in financial accounting like not providing performance analysis or cost control. 3. Cost accounting involves classifying, recording, and allocating costs appropriately to determine cost of goods/services and profitability.

Uploaded by

Wipinson Wilson
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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COST ACCOUNTING

 Reference Books:
 Cost Accounting – Horngren
 Cost Accounting – M N Arora
Cost Accounting

Why Cost Accounting is required?


Financial Accounting

It is the art of recording,


classifying and summarising in a
significant manner and in terms of
money, transactions and events,
which are in part at least, of a
financial character and
interpreting the results thereof.
Limitations of Financial Accounting

1. Shows only overall


performance
2. Historical in nature
3. No performance appraisal
4. No material control system
5. No labour cost control
Contnd…..

6. No proper classification of
costs
7. No analyses of losses
8. Inadequate information for
price fixation
9. No cost Comparison
10. Fails to supply useful data to
management
Costing

CIMA- defines Costing as the


techniques and processes of
ascertaining costs.
Cost Accounting

Kohler- “that branch of


Accounting dealing with the
classification, recording,
allocation, summarisation and
reporting of current and
prospective costs”
Cost Accounting
Mr. Wheldon defines Cost
Accounting as “the classifying,
recording and appropriate allocation
of expenditure for the determination
of the costs of products or services,
the relation of these costs to sales
value and the ascertainment of
profitability”.
Cost Accountancy
“ The application of costing and
cost accounting principles, methods
and techniques to the science, art
and practice of cost control and the
ascertainment of profitability. It
includes the presentation of
information derived there from for
the purposes of managerial
decision making”.
Management Accounting

CIMA - “ the presentation of accounting


information in such a way as to assist
management in creation of policy and in
the day-to-day operations of an
undertaking”.
Modern Cost Accounting is often
called Management Accounting.
Why?

Because cost accountants look at their


organisation through manager’s eyes.
Objectives and Functions of Cost
Accounting

1. Ascertainment of costs
2. Control of costs
3. Guide to business policy
4. Determination of selling price
Financial Accounting Vs. Cost
Accounting

1. Purpose
2. Statutory Requirements
3. Analysis of cost and profit
4. Periodicity of reporting
5. Control aspect
Contd…..

6. Historical and predetermined


costs
7. Format of presenting
Information
8. Types of transactions recorded
9. Types of statements prepared
Management Accounting

Management accounting is
concerned with all such
accounting information that is
useful to management
Main Objectives of Management A/c

1. Cost determination
2. Cost Control
3. Performance evaluation
4. Supplying information for
planning and decision making
Cost Accounting Vs. Management
Accounting

1. Scope

2. Emphasis

3. Techniques employed

4. Evolution
Cost
Oxford Dictionary- “ the price paid
for something”

CIMA London – “ the amount of


expenditure incurred or
attributable to a given thing.”
Cost Vs. Expense and Loss

Expense is defined as “an expired


cost resulting from a productive
usage of an asset.”
Loss

Loss is defined as “reduction in


the firm’s equity, other than from
withdrawals of capital for which
no compensating value has been
received”.
Cost Centre
CIMA London- “ a location, person
or item of equipment ( or group of
these) for which costs may be
ascertained and used for the
purpose of control”.
Cost Centre

A cost centre refers to a section of


the business to which costs can
be charged.
Classification of Cost centres

1. Personal cost centre


2. Impersonal cost centre
On the basis of function

1. Production cost centre


2. Service cost centre
Cost unit

“A cost unit is defined as a “unit


of product, service or time in
relation to which cost may be
ascertained or expressed”.
Cost Units classification

1. Units of production (a tonne of


steel)

2. Units of service ( Passenger


miles, cinema seats)
Methods of Costing

The methods or types of costing


refers to the techniques and
processes employed in the
ascertainment of costs. Basically,
there are two methods of costing:
1. Job costing or Job order
costing and
2. Process Costing

All other methods are


variations of either job costing
or process costing.
Methods of costing

1. Job order costing

2. Contract costing or terminal


costing

3. Batch Costing
Contnd……

4. Process Costing

5. Operation costing

6. Single, output or unit costing

7. Operating or service costing

8. Multiple or composite costing


Techniques of costing

1. Standard Costing

2. Budgetary control

3. Marginal costing

4. Total Absorption costing

5. Uniform costing
Classification of costs
1. Direct and Indirect costs
Fixed and Variable Costs
Committed and Discretionary costs
Product costs and Period costs
Controllable and Non-controllable costs
Historical costs and Pre-determined costs
Normal and Abnormal costs

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