BCOM 4 Cost Accounting1

CLASS:-B.Com.
IV Semester SUBJECT: - Cost Accounting
SYLLABUS
Class – B.Com IV Sem. (All)

Subject: Cost Accounting
Unit-I Cost: Meaning, Concept and Classification. Elements of Cost,

Nature & Importance, Material Costing. Methods of Valuation of
Material issue. Concept and material control and its techniques.
Labour Costing, Methods of Wages payments.
Unit- II Unit Costing, Preparation of Cost Sheet and Statement of Cost

(Including calculation of tender price) Overhead costing,
(Including calculation of machine hour rate.)
Unit – III Contract and Job costing, operating costing.
Unit – IV Process Costing (Including Inter process profit and Reserve).

Reconciliation of Cost and Financial Accounts.
Unit – V Marginal Costing- Profit – Volume Ratio, Break – Even Point,

Margin of Safety, Application of Break-even Analysis. Cost Audit –
Meaning, Importance and Techniques of Cost Audit, Cost Audit
Programme.
45, Anurag Nagar, Behind Press Complex, Indore (M.P.) Ph.: 4262100, www.rccmindore.com
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CLASS:-B.Com. IV Semester SUBJECT: - Cost Accounting
UNIT-I
Introduction
Costing - terminology
Costing relates to the determination of cost of a product manufactured or service rendered. In order to
ascertain cost, it involves system, methods and techniques of accumulation, classification and analysis
of cost.
Cost Accounting: - “The process of accounting for cost from the point at which expenditure is incurred
or committed to the establishment of its ultimate relationship with cost centres and cost units.
The term ‘cost Accountancy’ includes (i) Costing and (ii) Cost Accounting. Its purposes are (i) cost-
control, and (ii) profitability-ascertainment and serves as an essential tool of the management for
decision-making.
Cost Centre
Cost Centre is defined as “a location or person or place or machine or item of equipment or thing for
which cost can be ascertained and used for the purpose of cost control.” Cost centre can be classified as:
1. Process cost centre is one in which a specific process or a continuous sequence of operations is
carried out on a regular basis.
2. Production cost centre is one in which production activity is carried where the shape of raw
material is converted into a finished product.
3. Service cost centre are those which render services to the other cost centres. For examples a
maintenance & repair department, store department etc.
4. Impersonal cost centre is one which consists of a location or item of equipment (or group of
these).
5. Personal cost centre is one which consists of a person or group of persons.
6. Operation cost centre is one which consists of those machines and/or persons carrying out
similar operations.
Profit Centre
It means a centre responsible for adopting ways and avenues to earn maximum possible profit on a
product or any other activity of business, by making market surveys, suggests localities for publicity,
helps to formulate sales policies and suggests to add more values to the product at the same or cheaper
costs.
Cost Unit
Cost unit may be defined as “a quantitative unit of product or service in relation to which costs are
ascertained.”
NATURE AND CHARACTERISTICS OF COST ACCOUNTING

1. Cost accounting is a special branch of accounting having its own specific significance based on
double entry system.
2. It ascertains cost of products and services through the process of accumulation, classification,
analysis and recording.
3. It determines the cost of incomplete work or job.
4. The extensive use of this system involves application of statistical data, control methods &
techniques and determining profitability.
5. This system provides measures for control and guidance for various levels of management.
6. Helpful in decision making process.
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SCOPE OF COST ACCOUNTING

1. Analysis of the profitability of product, service, job or activities.
2. Analysis of profitability of various departments of segments of the organization.
3. Analysis of the type and nature of cost.
4. Explanation of the causes of variances between actual cost and standard cost.
5. Helpful in determination of selling price.
6. Analysis of the change in profit as per the change in level of production.
7. Analysis of the profit or loss of the organization.
8. Assist in management information system.
9. Provides basis for the application of techniques of management accounting.
10. Helpful for manufacturing and service rendering organization.
Difference between cost accounting and financial accounting

S.No. Cost Accounting Financial Accounting
1. Kept by business engaged either in Kept by all types of business houses, big or small,
manufacturing either in manufacturing or whether engaged in trading, manufacturing or
in rendering services where the cost per non-profit making associations.
unit is to be ascertained.
2. Maintain full and detailed records Records all types of expenses and incomes and
pertaining to all the three elements of cost, also items of profit appropriation. However, they
viz., materials, labour and expenses. do not keep detailed records of elements of cost.
Provide data and reports to management Provide general information to management and
3.
for cost-ascertainment, planning, control outside parties in the form of Profit & Loss A/c
and decision-making. and
Ascertain the cost of each product, job or Balance Sheet of the business as a whole.
4. order and then show profit/loss made on Do not show profit/loss on each product, job or
each. order individually.
5. Provide information to management as and Provide operating net result and financial
when desired, daily, weekly, monthly, position at the end of financial year.
quarterly, etc.
6. To calculate the cost, the indirect expenses Show historical costs, i.e., they include expenses
include there in are based on estimates. having actually been incurred in the financial
7. Greater control is exercised on materials year.
and stores, labour and overhead costs by Greater emphasis is laid on cash and financial
budgetary control and standard costing. No position. They do not attach that importance to
emphasis is given to cash-in-hand and Bank control of materials, labor and overheads.
8. transactions.
As the cost is available, it is easier to fix No correct tender prices can be quoted.
9. selling price and quote for tenders
The production costs of a period can be Such comparison of costs of individual
compared with previous corresponding production is not easy.
period and the difference analysed.
10.
Provide information on the relative
The relative efficiency of workmen, plants, etc.,
efficiencies of plant, machinery, labour and
11. cannot be easily judged.
departments.
Stocks are valued at cost price or market price,
Stocks are valued at costs.
12. whichever is lower.
These accounts are for internal
They form basis for external transactions also,
transactions and do not form the basis of
13. and record receipts, payments and credit
receipts and payments to outside parties.
transactions.
The companies Act has made it obligatory
It is almost necessary to maintain this accounting
for certain industries to maintain Cost
to run business. To meet the requirements of
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14 Accounting, otherwise it is voluntary to Companies Act, and Income-tax Act, it is

maintain cost them. obligatory to keep them.
Charts, graphs, diagrams, statements, etc. Not much use is made of such presentation in this
are much used in this system for system.
informatory reports to management.
FUNDAMENTAL PRINCIPLES OF COSTING

1. Cost is related to its cause.
2. Cost is charged after it is incurred.
3. Abnormal costs are excluded from costing.
4. Past costs are not charged to future periods.
5. The concept of conservatism has no place in costing.
6. Accounting for cost is based on Double-entry Principle.
OBJECTS AND FUNCTIONS OF COST ACCOUNTING

i. To ascertain the cost per unit of the different products manufactured by a business concern.
ii. To advise management on future expansion policies and proposed capital projects.
iii. To organize the internal audit system to ensure effective working of different departments.
iv. To help in supervising the working of punched card accounting or data processing through
computers.
v. Provide useful data to the management for taking decisions.
vi. To find out costing profit or loss by identifying with revenues the cost of those products or
services To provide specialized services of cost audit in order to prevent the errors and frauds
and to facilitate prompt and reliable information to the management.
vii. To organize cost reduction programmes with the help of different departmental managers.
viii. To provide requisite data and serves as a guide to price fixing of products manufactured or
services rendered.
ix. To help in the preparation of budgets and implementation of budgetary control.
x. To guide management in the formulation and implementation of incentive bonus plans based
on productivity and cost savings.
xi. To supply useful data to the management to take various financial decisions such as
introduction of new products, replacement of labour by machine etc.
xii. To organize an effective information system so that different levels of management may get
required information at the right time in right form for carrying out their individual
responsibilities in an efficient manner.
TECHNIQUES AND METHODS OF COSTING

1. Historical Costing. “The ascertainment of costs after they have been incurred.” Under this
method all the expenses incurred on the production are first incurred and then the costs are
ascertained.
2. Standard costing. “The preparation and use of standard costs, their comparison with actual
costs and the analysis of variances to their causes and points of incidence.”
3. Marginal Costing. “The ascertainment of marginal costs and of the effect on profit of changes in
volume or type of output by differentiating between fixed costs and variable costs.”
4. Direct Costing. “The practice of charging all direct costs to operations, processes or products,
leaving all the indirect costs to be written off against profits in the period in which they arise.”
5. Absorption Costing. “The practice of charging all costs, both variable and fixed, to operations,
processes or products.”
6. Uniform Costing. “The use by several undertakings of the same costing principles and/or
practices.”
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Methods of Costing
1. Job costing. 2. Contract Costing. 3. Batch Costing. 4. Target Costing. 5. Process Costing. 6. Single or
Output Costing. 7. Operation Costing.8.Departmental Costing. 9. Composite or Multiple Costing.
ANALYSIS AND CLASSIFICATION OF COST

MATERIALS COST
Material cost is of two types, viz., (i) Direct Materials Cost, and (ii) Indirect Material cost.
i. Direct Materials Cost. Is one which can be identified with and allocated to cost centres or cost
units.” E.g., timber in furniture-making; clay in brick-making; cement, stones, etc., in building.
ii. Indirect Materials Cost. Which cannot be allocated but which can be apportioned to or absorbed
by, cost centres or cost units. For example, power, fuel, repair and maintenance etc.
LABOUR COST
“The Labour Cost is the cost of remuneration (wages, salaries, commissions, bonus, etc.) of the
employees of an undertaking.”
i. Direct Labour Cost. Direct Labour Cost are the cost which can be identified with and allocated to
cost centres or cost units.
ii. Indirect Labour Cost. is one which cannot be allocated but which can be apportioned to, or
absorbed by, cost centres or cost units.”e.g. Wages of indirect labour; Wages of idle time.
OVERHEADS
Overheads are the aggregate of the cost of indirect material, indirect labour and such other expenses,
which cannot be conveniently charged direct to specific cost centre or cost units.
ANALYSIS OF TOTAL COST

1. Prime Cost.- The aggregate of Direct material Cost, direct Labour Cost and Variable Direct
expenses (or chargeable expenses) is the prime Cost.
2. Factory Cost.- Factory Cost is the total of Prime Cost + Factory Overheads,
3. Cost of Production.- The total Factory Cost and Office and Administration Overheads is the
office Cost or Cost of Production.
4. Total Cost.= Cost of Production + Selling & Distribution Overheads.
CLASSIFICATION OF COST AND COST CONCEPT

The cost-classification is the process of grouping costs according to their characteristics.
1. According to Elements. The cost is classified into (i) Direct cost, and (ii) Indirect cost
according to elements, viz., materials, Labour and Expenses.
2. According to Functions. The cost is classified into the following:
i. Production Cost, or Manufacturing Cost, or Factory Cost,
ii. Administration Cost,
iii. Selling Cost, and
iv. Distribution Cost.
3. According to Nature. The cost is classified into the following:
i. Fixed Cost is “a cost which tends to be unaffected by variations in volume of output.
ii. Variable Cost is “a cost which tends to vary directly with volume of output.
iii. Semi-fixed or Semi-variable Cost is ‘a cost which is partly variable.’
4. According to Controllability.
i. Controllable cost. This is a cost which can be influenced by the action of a specified member of
an undertaking.
ii. Uncontrollable Cost. It is the cost which cannot be influenced by the action of a specified
member of an undertaking, such as fixed costs.
5. According to Normality. The cost is classified into (i) Normal cost, and (ii) Abnormal cost.
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i. Normal cost. It is the cost at a given level of output in the condition at which that level of output
is normally attained.
ii. Abnormal cost. It is a cost which is beyond normal cost.
6. According to Relevance to Decision-making and Control.
i. Shut-down Cost. A cost which will is required to be incurred even though a plant is closed or
shut-down for a temporary period, e.g., the cost of rent, rates, depreciation, maintenance
expenses etc.
ii. Sunk cost. A cost which has been incurred in the past or sunk in the past and is not relevant to
the particular decision-making. E.g. written down book value of the plant.
iii. Opportunity Cost. The costs which are related to the sacrifice made or the benefits foregone
are opportunity costs.
iv. Imputed Cost. It is a hypothetical cost required to be considered to make costs comparable.
Interest on one’s own capital.
v. Out-of-Pocket cost. A cost which will have to be paid to outsiders as against costs such as
depreciation, which do not require any cash payment.
vi. Replacement Cost. It is the cost of replacing a material or assets, by purchase from the current
market.
vii. Marginal Cost. Marginal cost refers to the increase or decrease in total cost caused due to
increase or decrease in output by one single unit.
viii. Differential Cost. The change in total cost due to the change in method or technique of
production or charged in level of production is called differential cost.
ix. Standard Cost. Standard cost is a predetermined cost or estimate which is compared with the
actual cost in order to determine variance and carry out an analysis of variance for cost
control.
x. Relevant Cost. The relevant costs are those cost which aids to makes specific management
decisions.
7. Product Cost & Period Cost
The product cost is the total of cost that is associated with a unit of product. The cost in forming the
product viz., direct material, direct labor, factory overhead constitute the product cost.
Period cost, on the other hand, are costs that tends to be unaffected by changes in level of activity
during as given specific time period. E.g., Selling & distribution cost
SIGNIFICANCE OF COST ACCOUNTING

i. It discloses the profitable and unprofitable activities in a concern and hence necessary
adjustments are done.
ii. It enables the concern to measure its efficiency and then maintain or improve.
iii. It is helpful to the consumer by ensuring lower prices.
iv. It is useful to the government in the form of duties paid.
v. It discloses the relative efficiency of different workers in a concern.
vi. Through it the exact causes of decrease or an increase in profit or loss can be detected.
vii. It provided information upon which estimates and tenders are based.
viii. It guides future production policies.
ix. It helps in increasing profits by disclosing the sources of loss or waste and by suggesting such
controls so that the same may not be repeated.
x. It enables a periodical determination of profits or losses without restoring to stock taking.
ADVANTAGES OF COST ACCOUNTING

To the Management
1. Action against unprofitable Activities 2. Facilities Decision Making 3. Inventory Control
4. Budgetary Control 5.Facilitations cost control 6. Prevents Fraud 7.Tool of Management Control
8. Measuring rods 9.Future Prospects
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B. To the Employees
1. Sound Wage Policy
2. Security of Job
3. Distinction between Efficient and Inefficient Workers
C. To the Creditors
Bankers, creditors, investors etc., can have a better understanding of the firm as regard the process
and prosperity, before they offer financial leading.
D. To the Government
1. For government wage tribunals, for deciding the state subsidy to industry.
2. In the preparation of national plans, economic development etc.
3. Cost audit is important and industries have to keep books of accounts to show the utilization of
materials, labour and other costs.
E. To the Public
1. Removes all types of wastages and inefficiencies.
2. Facilities the customers to pay fair price.
3. Development and prosperity of industries will create employment opportunities.
CHARACERTISTICS OF A GOOD COSTING SYSTEM

1. Accuracy 6. Promptness
2. Equity 7. Observation and Resulting
3. Simplicity 8. Periodical Result
4. Elasticity 9. Reconciliation with Financial Accounts
5. Comparability
Material Costing
Material or inventory cost control is defined as a systematic control and regulation of purchase, storage
and usage of materials in such a way as to maintain an even flow of production at proper times and
valued at right prices at the same time avoiding excessive investment in inventories.
Objectives of Material control

i. No under stocking or over stocking
ii. Economy in purchasing
iii. Proper Quality
iv. Minimum wastage
v. Information about material availability
Principles or Essentials of Material Control

i. Proper co-ordination and Co-operation between various departments- Purchase, Stores,
Inspection, Accounting etc.
ii. Proper classification and codification of materials
iii. Proper scheduling of material requirements.
iv. Perpetual inventory system should be operated
v. Various stock levels to be fixed
vi. Proper system of internal check to be introduced for adequate safeguards and supervision
vii. Regular reporting to management regarding purchase, issues and stock of materials.
viii. Proper storage and usage of materials to avoid theft and wastages.
Functions of purchasing department:

i. Determination of quality to be purchased
ii. Determination of ordering point.
iii. Determination of price at which to be purchased.
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CLASS:-B.COM. IV SEMESTER SUBJECT: - Cost Accounting
Purchase Procedure: -
i. Initiating the purchase
ii. Receiving of the purchase requisitions.
iii. Deciding important factors relating to purchase.
iv. Inviting tenders and selecting suppliers.
v. Preparation and execution of purchase orders
vi. Receipt of materials
vii. Inspection and testing of materials received
viii. Debit note upon the supplier in respect of rejected materials.
ix. Passing invoices for payment.
Stores Organization and control

Objectives
i. Receive materials, check them and place them properly
ii. To issues the materials to jobs on the basis of store requisitions
iii. To enter all the receipts and issues in the bin card and show the balance
iv. Avoiding overstocking and under stocking by checking the ordering points of different materials.
v. Maintain, preserve and protect the materials during storage
vi. Maintain up-to-date stores records
vii. To report on obsolete and slow moving materials, waste, scrap, etc.
viii. Requisitioning further supplies from purchasing department.
Stores Records
i. Perpetual Inventory Records are those which show movement of stores, i.e. receipt and issues.
Eg. Bin Card and stores ledger
ii. Documents are those which authorize movement of materials into or out of stores e.g. Goods
received Note, Bill of materials, material requisition note, materials return note, etc.
Techniques of Inventory Control

1. ABC Technique: - It is a value based system of material control where materials are classified
according to their value, A, B and C, so that costly and valuable materials are given greater
attention and care.
‘A’ items are high value items which consist of only a small percentage of total items
handled and hence require tight control.
‘B’ items are medium value materials which should be under normal control procedures
‘C’ items are low value materials which represent a large number of items and require
economical control procedures, and least attention.
2. Stock Levels: - To avoid under stocking and overstocking, maximum, minimum and reorder
levels are fixed.
Factors which influence stock levels are

a. Anticipated rate of consumption
b. Account of capital available
c. Availability of storage space
d. Storage/ warehousing cost
e. Procurement cost
f. Reliability of suppliers
g. Minimum order quantities imposed by suppliers
h. Risk of loss due to obsolescence, deterioration, evaporation and fall in market prices
i. Maximum Level: - It indicates the maximum quantity of inventory item which can be stored at
any given time
Maximum Level = Minimum Stock + Economic Order quantity
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Or
= Reorder Point + Reorder quantity –
[Minimum Consumption x Minimum reorder Period]
ii. Minimum Level: - It indicates the minimum quantity of stock that should always be
maintained so that there is no risk of stoppage of production.
Minimum Level = Reorder Point – [Average Consumption x Average
re-order period]
iii. Re-order Level or Re-order Point: - This is that level of material at which purchase requisition
is initiated for fresh supplies.
Re-order Level = Maximum consumption x Maximum Re-order period
iv. Danger Level: - It is that level at which normal issued are stopped and materials are issued for
important jobs only.
Danger Level = Normal consumption x Maximum re-order period under emergency condition
v. Average stock Level:=1 × [ Minimum Level + Maximum Level]
2 Or
Minimum Level + ½ x [EOQ or re-order quantity]
3. EOQ [Economic or order quantity] or Re-order quantity: - EOCs is that size of the order which
gives maximum economy in purchasing any material and ultimately contributes towards
maintaining the material at optimum level and at minimum cost. While setting EOQ, two types of
costs are considered
i. Ordering cost: - Cost of placing orders.
ii. Carrying Cost: - Cost of holding stock in storage
2 AO
EOQ = , where A= annual consumption in units, O = ordering cost per order,
C
C = storage or carrying cost as a percentage of inventory.
Control Ratios
4. Inventory turnover Ratios: - This tells us how many times in a year is are used up and replaced.
The greater the stock turnover, the more efficient is the stock policy. It indicates the rate of
consumption, i.e. whether materials are moving fast or slowly. A high stock turnover ratio
indicates fast moving materials and a low ratio indicates slow moving materials.
i. Stock Turnover Ratio = Cost of Materials consumed during the period
Average stock of materials during the period
Value of Finished Stock sold in the period
ii. Finished Stock Turnover Ratio =
Value of Average stock held during the period
iii. Inventory Turnover in terms of days = Days of the period
Stock Turnover Rate
Or
Value of Average x Days of the period
Material consumed
iv. Input – Output Ratio: - This is the ratio of raw material put into manufacture and standard
raw material content of the actual output. The formula is
Input Units
× 100
Outputsystem
5. Perpetual Inventory units and system of store verification: - Perpetual Inventory aims at
devising the system of records by which the receipts and issues of material stores may be
recorded immediately at the time of each transaction and the balance may be brought out so as to
show the up-to-date position. This system is operated by: -
i. Reconciliation of stock bin cards and stores ledger accounts
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ii. Physical stock verification which is of two types: -

a) Periodic stock verification & (b) continuous stock verification
Advantages of Perpetual Inventory System

i. Records are updated
ii. Materials are within Minimum and Maximum Limits
iii. Purchases are requisitioned at appropriate time
iv. Facilitates preparation of interim P & L Account and Balance Sheet.
v. Acts as moral check on staff of stores Department.
vi. A system of internal check remains in operation all the time.
vii. Discrepancies are readily discovered and rectified.
viii. Slow moving, dormant and obsolete materials are readily notified to purchase department
ix. A detailed and reliable check on stores is obtained.
6. Budgetary Techniques for Inventory standards:-

i. Fixation of material cost planning
ii. Preparation of material budget
Pricing of Materials Issued

1. Cost Price Methods: -
i. First-in-First-Out Methods – FIFO
ii. Last in first Out Method – LIFO
iii. Highest in First Out Method – HIFO
iv. Base stock Method
v. Specific Price Method.
2. Average rate Method: -
i. Simple Average Method
ii. Weighted Average Method
3. Market Price Method: -
i. Replacement Price Method.
ii. Realizable Price Method.
4. National Price Method: -
i. Standard Price Method.
ii. Inflated Price Method.
Treatment of material Wastage/ Losses

1. Material Losses may be normal as well as Abnormal.
Normal Loss: - Which has to be incurred and is unavoidable e.g., evaporation in case of liquid
materials, loss due to loading and unloading of materials, etc.
Abnormal Loss: - which arises due to inefficiency in operations or mischief, e.g., theft, pilferage,
breakage, fire etc.
Accounting Treatment: - In order to absorb normal material losses in cost, the rates of usable
materials in stock are inflated so that such losses are covered. Normal material loss is transferred
to factory overhead.
Abnormal material losses are charged to Costing profit and loss account.
2. Waste: - It is that part of basic raw material which is lost in processing and has no recovery value
Accounting: - If it is normal, the cost will be absorbed by the good production and if it is
abnormal, then it is transferred to Costing profit and loss account.
Formulae
1. Economic Order Quantity (EOQ)
2 𝐴𝐵
EOQ =√ 𝐶𝐶
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Where, A = Annual consumption

B = Ordering cost / Procurement cost/ buying cost/ set up cost
CC = Carrying cost / Holding cost/ Storage cost
𝑅𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡
CC = Cost per unit x 100
 Economic Order Quantity (EOQ)
2 𝐴𝐵 𝑃
EOQ =√ x =√
𝐶𝐶 𝑃−𝐷
Where, D = Demand of item or Consumption
P = Production of item or Procurement rate
 Economic Order Quantity (EOQ)
2 𝐴𝐵 𝐶𝐶+𝐶𝑆
EOQ =√ x =√
𝐶𝐶 𝐶𝑠
Where, CS = Cost of storage
 Ordering Cost – Per order
 Carrying cost – Per unit per year
 Shortage cost – Per unit per year
2. Total Cost
Total Cost = Total Ordering Cost + Total Carrying Cost + Total Purchase Cost
𝐴𝑛𝑛𝑢𝑎𝑙 𝑈𝑠𝑎𝑔𝑒
a. Total Ordering Cost = 𝐸𝑂𝑄
x Ordering Cost per unit
𝐸𝑂𝑄
b. Total Carrying Cost = 2 x Carrying Cost per unit
c. Total Purchase Cost = Annual Usage x Ordering Cost per unit
3. Variable Cost
Variable cost = Ordering Cost + Carrying Cost
4. Number of Orders
𝐴𝑛𝑛𝑢𝑎𝑙 𝑈𝑠𝑎𝑔𝑒
Number of orders = 𝐸𝑂𝑄
Number of orders cannot come in Decimal
5. Time Between Placing Order
𝑁𝑜.𝑜𝑓 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑑𝑎𝑦𝑠
Time between placing order = 𝑁𝑜.𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠
6. Cycling Time
𝑁𝑜.𝑜𝑓 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑑𝑎𝑦𝑠
Cycling Time = 𝑁𝑜.𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠
7. Run Time
𝐸𝑂𝑄
Run Time = 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑖𝑛 𝑎 𝑑𝑎𝑦
Note –
o If Discount is given in question then, cost per units will be changed in all cases.
o If information is given in months then, all items are converted into months.
o Carrying cost is changed when % of carrying cost is given on cost.
8. Re-order Level
Reorder Level = Maximum usage Rate x Maximum Reorder Period/Lead time
OR
(Lead Time x Average Daily Consumption) + Safety Stock
9. Minimum Level
Minimum Level = Reorder Level – (Average Daily Consumption x Average order Period)
10. Maximum Level
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Maximum level = Reorder level + Reorder Quantity – (Minimum consumption x Minimum

Reordering Period)
OR
Demand (Review Period x Lead Time) + Safety Stock
11. Average Stock Level
Average Stock Level = Minimum Stock Level + ½ of Reorder Quantity
12. Danger Level
Danger level = Average consumption x Maximum Reorder Period for emergency purchases
13. Inventory Turnover Ratio
𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝐶𝑜𝑛𝑠𝑢𝑚𝑒𝑑
Inventory Turnover Ratio = 𝐴𝑣𝑒 𝑟𝑎𝑔𝑒𝑅𝑎𝑤 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙
o Material Consumed = Opening Stock of Raw material + Purchases – Closing Stock of Raw
Material
𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘 +𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘
o Average Raw Material = 2
𝐷𝑎𝑦𝑠 𝑖𝑛 𝑎 𝑦𝑒𝑎𝑟
o Inventory Velocity = 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜
ACCOUNTING FOR LABOUR
Labour cost, representing the human contribution to production is an important factor of cost which
requires constant control, measurement and analysis.
Classification of Labour Cost

i. Direct Labour: - It is the cost of that labour that is directly engaged in production work and can be
conveniently identified or attributed wholly to a particular job, process or cost unit.
ii. Indirect Labour: - It is the cost paid to those workers who are not directly engaged in converting
raw materials into finished product and cannot be conveniently identified with a particular job,
product or cost unit. E.g. supervisors, cleaners’ instructors, peons etc.
Labour Cost Control Factors

i. Production Planning
ii. Setting up of standards
iii. Use of Labour Budgets
iv. Study of the effectiveness of wage policy
v. Labour performance Reports.
Organization for Accounting and control of Labour cost

i. Personnel Department
ii. Engineering and work study Department
iii. Time Keeping Department
iv. Payroll Department
v. Cost Accounting Department
Labour turnover
The rate of change in the composition of the labour force in an organization during a specified period is
called Labour turnover.
Causes of Labour Turnover

i. Low wages and allowances
ii. Ill health and bad working conditions
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iii. Lack of safety measures, medical facilities, transport facility, etc.

iv. Dissatisfaction due to various causes like working hours, improper placement, unfair method of
promotion, bad relationship with fellow workers, bad training facilities etc.
v. Inadequate job security and retirement benefits
vi. Marriage in case of female workers
vii. Change of job for better opportunities
viii. Death or retirement.
ix. Seasonal character of the Industry
Reduction and Control of Labour turnover

1. Devising a suitable and satisfactory wage policy.
2. Providing working conditions conducive to health and efficiency.
3. Impartial and sympathetic attitude of personnel management
4. Introducing financial and non financial incentive plans
5. Providing promotional opportunities.
6. Encouraging labour participation in management
7. Introduction of effective grievance procedure
8. Strengthening the welfare measures
Methods of Measurement of labour turnover: -

i. Separation Method: -
Labour Turnover rate = No. of Workers left during a period
x 100
Average No. of workers during the period
ii. Replacement Method:

Labour Turnover Rate = No. of workers replaced during the period
x 100
Average No. of Workers during the period
iii. Flux Method: -

Labour Turnover Rate = No. of workers left + No. of workers replaced
x 100
Average No. of workers
Idle Time:
Idle time is time lost by workers who are paid on time basis. Idle time represents the time for
which they are paid but no production is obtained. For example time lost between factory gate and the
department, time when production is interrupted due to break down, tea breaks etc.
Causes – Idle time may occur owing to productive, administrative or economic causes.
Over Time – the time worked over and above the normal hour is termed as overtime. The remuneration
usually paid for the overtime work is at double the normal rate.
Need of overtime
1. Increase in demand for the products where the production during the normal hours falls short to
meet it;
2. Shortage of workers due to absence or non-availability and so it is decided to give overtime work
to the existing staff;
3. Utilization of perishable raw material by working overtime;
4. Execution of urgent orders, to complete the work on the same day.
5. Shortage of equipments, machines, or space for the completion of jobs.
6. Lack of administrative control on workers, on account of which the production during normal
hours remains less than the standard output and overtime work has to be done by the workers.
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Disadvantages of overtime working:-

1. Work efficiency is reduced. It is too much to expect of a tired worker to work as efficiently during
overtime as in normal hours;
2. Worker’s health is adversely affected;
3. The quality of the output is affected; and
4. The cost of production rises due to increased labour cost.
Methods of Remuneration
1. Time Rate system: - Under this system workers are paid according to the time for which they
work. Payment may be on hourly basis, daily basis, weekly or monthly.
Suitability of this method
a. Where quality of work is more important than quantity
b. Where output cannot be measured in quantitative terms
c. Where output is beyond the control of the worker
d. Where work is done on a small scale so that close supervision is possible
e. Where the worker is a learner or an apprentice.
2. Piece Rate system: - Here wages = Rate per unit x No. of units produced.
Suitability of this method: -
a. Where production is standardized and repetitive in nature
b. When the aim is continuous maximum production
c. Where output can be measured
d. Where workers continue at the same job for long periods
e. Where standard time required completing a job can be measured accurately.
Various Incentive Schemes

1. Halsey Premium Plan: - In this system, a standard time is fixed for each job. Wages are paid for
actual time spent on the job and bonus or premium is paid in a fixed proportion to time saved, i.e.
50% or 40%
Total earnings = Time Rate x Time Taken + 50% of [time saved x Time Rate]
2. Halsey Weir Plan: - Same as above except that the bonus is equal to 30% the time saved.
3. Rowan Plan: -
Total earnings = [Time Rate x Time Taken] + Bonus
Bonus = [Time Rate x Time Taken x Time saved
Time Allowed
4. Taylor’s different Piece Rate Plan: - In this system

i. Day wages are not guaranteed
ii. Standard time is set for each job
iii. Two piece rates are fixed for each job – Higher and Lower rate
The lower piece rate is payable where a worker takes longer time than the standard time and
higher rate is payable where a worker completed the work within the standards time.
Merricks differential Piece Rate system: - This plan lays down three rates
Percentage of standard Output Piece rate
Up to 83% normal Piece rate
83% to 100% 110% of Normal Piece Rate
Above 100% 120% of Normal Piece Rate
5. Emerson’s Efficiency Plan: - Here the standard of efficiency is start 66 2/3%. A worker gets
guaranteed time wages for efficiency up to the standard. Bonus is payable as follows: -
Efficiency Bonus
Below 662/3% Time wages (No bonus)
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662/3% to 100% Bonus increases in steps and rises to 20% at

100% efficiency
Over 100% 20% bonus plus 1% bonus for each increase of
1% inefficiency
6. Gantt’s Task and bonus Plan: - In this plan,

a. Day wages on time basis are guaranteed
b. A standard is set and remuneration is calculated as follows: -
i. When output is below standard – payment at time rate
ii. When output is at standard – payment at time rate plus 20% bonus
iii. When output is above standard: - payment at higher piece rate
8. Bedeaux Point Premium Plan: - In this plan standard time of each job is determined in minutes
known as Bedeaux points or B’s. One B unit represents the amount of work which an average
worker can do in one minute.
Total Earnings = Time rate x Time Taken + No. of B’s Saved x Hourly rate x 75
60 100
Group bonus Plans
These may be adopted in the following circumstances:-
a. Where it is not possible to measure the performance of each individual worker
b. Where the workers constituting a group possess the same or equal efficiency and skill.
c. Where the number of workers constituting a group is not very large
d. Where production is dependent on collective effort of a group of workers as a whole.
Types of group Bonus Plans

1. Priestman’s Output Bonus Plan
2. Cost Bonus Scheme
i. Nunn-Bush Scheme
ii. Scanlan Scheme
iii. Rucker Acheme
iv. Towne Gain Scheme
Co-Partnership and Profit sharing

Co-Partnership is a scheme whereby employees are given an opportunity to share in the capital of the
business and to receive a part of the profit that accrues to their share of ownership.
Under the profit sharing schemes, the workers are paid in addition to wages a predetermined share of the
profits of the undertaking.
Formulae
Measurement of Labour Turnover
1. Separation Method
𝑁𝑜.𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑙𝑒𝑓𝑡 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡𝑕𝑒 𝑝𝑒𝑟𝑖𝑜𝑑
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑜.𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡𝑕𝑒 𝑝𝑟𝑖𝑜𝑑 x 100
2. Replacement Method
𝑁𝑜 .𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑟𝑒𝑝𝑙𝑎𝑐𝑒 𝑖𝑛 𝑡𝑕𝑒 𝑝𝑒𝑟𝑖𝑜𝑑
= x 100
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑜.𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡𝑕𝑒 𝑝𝑟𝑖𝑜𝑑
3. Flux Method
𝑁𝑜.𝑜𝑓 𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑖𝑜𝑛 +𝑁𝑜.𝑜𝑓 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑚𝑒𝑛𝑡
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑜.𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡𝑕𝑒 𝑝𝑟𝑖𝑜𝑑 x 100
4. Average Number of Employees
𝑁𝑜.𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑎𝑡 𝑡𝑕𝑒 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 +𝑁𝑜.𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑎𝑡 𝑡𝑕𝑒 𝑒𝑛𝑑
= 2
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Incentive Schemes
1. Halsey Plan
Guaranteed wages = Time taken x Rate per hour
Actual Wage = Guaranteed Wage + Bonus (Time x Rate per hour x Percentage of bonus)
[Assume % of Bonus = 50% (if nothing is given)]
2. Rowan Plan
Guaranteed wages = Time taken x Rate per hour
Actual Wage = Guaranteed Wage + Bonus
𝑇𝑖𝑚𝑒 𝑠𝑎𝑣𝑒𝑑
o Bonus = Time x Rate x Rate per hour x 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑇𝑖𝑚𝑒
3. Taylor’s Differentiate Price Rate Plan
Actual Salary = under standard x Low piece Rate
OR
Actual Salary = Standard or more than standard x High Piece Rate
4. Gantt Bonus System
o (Below Standard)
Guaranteed wage = Standard Time x Standard Rate per hour
o (Up to Standard)
Guaranteed wage = Standard Time x Standard Rate per hour
Actual Wage = Guaranteed Wages + Bonus Of guaranteed Wage
o (Above standard)
Actual Wage = No. of Units x High Piece Rate
5. Merrick Differentiate/ Multiple Rate Method
Guaranteed Wage = Actual no. of units x Normal Piece Rate
Actual Wage according to % of efficiency

a. (Up-to 83%) Guaranteed wage = Actual Wage
b. (Above 83% and up-to 100%)
Actual Wage = Guaranteed Wage + 10% of Bonus of Guaranteed Wage
c. (Beyond 100%)
Guarantees Wages + 20% of Bonus of Guaranteed Wage
𝑁𝑜.𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
o Percentage of efficiency = 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑇𝑖𝑚𝑒 x 100 [Case I – Units given)
OR
𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑇𝑖𝑚𝑒
x 100 [Case II – Time given]
𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛
6. Emerson Efficiency Plan
Guaranteed Wages = Actual Time x Standard Rate per hour
OR
Guaranteed Wage = Standard no. of Units x Normal Piece Rate
Actual Wage according to % of efficiency

a. (Up-to 66.66%) Guaranteed wage = Actual Wage
b. (Above 67 and up-to 100%)
Actual Wage = Guaranteed Wage + Mentioned or 20% of Bonus of Guaranteed Wage
c. (Beyond 100%)
Actual Wage = Guarantees Wages + + Mentioned or 20% of Bonus of Guaranteed Wage + Each
1% increase in efficiency beyond 100%
7. Bedeaus Point Premium Plan
Guaranteed wage = Time Taken x Rate per hour
Actual Wage = Guaranteed wage + Bonus (Time saved x Rate per hour x Percentage of bonus)
[Assumed Bonus % = 75% (if nothing is given)]
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8. Barth Method
Wages = √𝑆𝑡𝑎𝑛𝑑𝑑𝑎𝑟𝑑 𝑡𝑖𝑚𝑒 𝑥 𝐴𝑐𝑡𝑢𝑎𝑙 𝑡𝑖𝑚𝑒 𝑥 𝑅𝑎𝑡𝑒
9. Time Wage/Rate system
Actual Wage = Actual Time x Rate per hour
10. Piece Rate Wage
Actual Wage = No. of piece or standard time x Rate per piece of Rate per hour
Note – Dearness allowance always calculated on actual time. (D.A. = Actual time x D.A. Per hour)
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UNIT-II
UNIT COSTING
“Single or Output Cost System is used in business where a standard product is turned out and it is desired
to find out the cost of basic unit of Production.” - J.R. Batliboi
Unit or output costing is used in those industries or organization where standard products are produced
from a common process and all the units produced are more or less similar to each other. This method is
also known as single costing method.
Definition of Unit or Output costing

Herold J. Wheldon – “Production cost accounting or unit cost accounting is such a method of cost
ascertainment which is based on production unit. It is applicable where the production work is done
continuously and the units are of same types of manufactured identical.”
From the analysis of the above definition it is clear that generally this method is used in those
industries, where following characteristics are found-
1. Production should be uniform or homogeneous and a continuous affair;
2. The units of production should be identical
3. The cost units should be physical and natural
4. Per unit cost has to be determined, for example per, ton metre, per kg, etc.
Objectives of unit or Output costing

The following are the main objectives for its application
1. To know the total cost of production and per unit cost within specific period.
2. To classify cost under related categories such as Prime Cost, works cost, cost of Production, etc.
and having its detailed analysis in order to determined per unit cost.
3. To determined the effect of each element of cost on total cost so as to have control over cost.
4. To compare the cost during two or more periods and to make efforts for cost control on the basis
of comparative analysis.
5. To determine proposed setting price to earn desired profit
6. To determined tender price on the basis of cost data and future prospects
In this method there is no need of apportionment of cost because all the expenses are made on a similar
type of production. But where production is done for a various grades or for various size, their expenses
have to be apportioned on the basis of size or grades in detail.
Elements of Cost under unit or output costing

In output costing in order to determined total cost and per unit, collection of various elements of
cost is done as follows –
Material – the quantity and value of material consumed is determined by preparing a Material Abstract.
The materials which are issued from stock are valued on an appropriate basis.
Labour – As required. Wages Analysis Sheet is prepared so that direct and indirect labour cost cab be
determined.
Direct Expenses – In addition to material and labour, there are certain other expenses incurred which are
termed as direct expenses.
Overheads – the overheads are debited to production for the period for which the cost us being
determined. These overheads expenses’ are taken from the financial records. There are certain expenses
which cannot be determined before the end of the accounting period.
Methods of determining unit cost

In those industries where production is carried out on mass scale and on a continuous basis and
standards products are manufactured, the total cost and per unit cost can e determined by the use of
following methods –
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1. Cost Sheet
2. Statement of Cost
Cost Sheet
Meaning of Cost Sheet
Coat sheet is a statement which is used to determined the total cost of goods produced or units in a
specific period and in which total cost, per unit cost and incurred at various stages from manufacturing a
products to the stage of making it saleable are shown. In this way, it can be said that cost sheet is a
statement in which the cost of production is presented in an analytical way.
Definition of Cost Sheet
ICMA, Landon – ‘Cost sheet is a document which provides for the assemble of the detailed cost of a cost
centre or cost unit.”
W.W. Bigg – “the expenditure which has been incurred upon production for a period is extracted from the
financial books and the records set out in a memorandum statement.
Characteristics and objects of cost Sheet

1. The cost sheets are produced under Unit costing methods of costing because its object is to
determined per unit cost.
2. The cost sheet is a periodic document which may be prepared weekly, fortnightly, montly or
quarterly.
3. The object of preparing a cost sheet is to ascertain the total cost and the burden of each individual
cost on the cost per unit of production for the period.
Difference between Cost Account and Cost Sheet

S.No. Base Cost Accounts Cost Sheet
1 Nature Cost Account is based on double entry Cost sheet is not based on double
principle and has Dr. and Cr. sides. entry principle.
2 Period Cost Account shows the costs but only Cost sheet are prepared during the
after the end of the year or period continuity of production
when they are closed
3 Comparative The cost account are not helpful to Cost sheet are helpful to know
Study know comparative costs comparative costs.
4 Reconciliation The cost accounts are useful in The cost sheet are not reconcile.
reconciling the profits of financial
books with cost books
5 Cost per unit Cost accounts do not show cost per Cost sheet ascertain cost per unit
unit in a detailed
6 Record are Cost accounts are prepared in the Cost sheets are prepared in form of
prepared form of accounts statement
Indirect Expenses
These are classified into three groups i.e., factory overheads, administration overheads, selling and
distribution overheads. They are usually charged at a predetermined rate.
Administration (Office) overheads may include

 Office expenses  Audit fees
 Legal expenses  General expenses
 Rent and taxes  Printing and stationary
 Directors fees  Bank charges postage and stamp etc.
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Factory overheads includes –

 Factory expenses  Laboratory expenses
 Motive power  Supervision charges
 Heritage  Repair
 Factory light and heat  Fuel and power
 Factory rent and rates  Wages and Foreman
 Losses tools written off  Light and water
 Unproductive wages  Fuel and gas
 Technical directors salary  consumable stores
 Depreciation on plants etc.  Factory lighting
 Stores overheads  Oil and water.
 Municipal tax
Selling and distribution overheads includes –

 Selling expenses  Expenses of demonstration
 Unkeep of delivery vans  Salaries of commission of salesman
 Commission on sales  Sales office expenses
 Warehouse expenses  Cost of free gifts, samples
 Bad debts  Salary of warehouse staff
 Advertisement expenses  Expenses of warehouse
 Carriage outwards  Van trucks etc.
 Travelling expenses
It will be proper to know the important basic formula to arrive the cost of material consumed is –
Cost of material consumed – value of opening stock of raw material + purchase value of raw material –
value of costing stock of raw material.
Below is given a list of typical cost units used in different industries –

Industry Cost unit
Colliery Per tone of coal
Sugar Per quintal
Cotton textiles yarn Per pound
Cloth Per meter
Paper Per kg
Steel Per tonne
Automobile Per automobile i.e., number
Power Per kilo watt hour
Items not included in cost –

 Income tax  Interest on capital
 Dividend paid  Goodwill, preliminary expenses written
 Donation off
 Cash discount  Obsolescence loss from machinery
 Interest on debenture
Methods for finding up unit costing

Following methods are used for finding up unit’s soting –
1. Cost Sheet
2. Cost Statement
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3. Production Account
4. Trading and profit & loss account and manufacturing account
Cost Sheet
Output……
Particulars Amount
Opening stock of Direct Material -----
(+) Purchase of Raw material -----
(+) Carriage on Purchases -----
(-) Closing stock of raw material -----

(-) Sale of Raw material -----
(-) Abnormal Wastage -----
Material Consumed -----

(+) Direct Wages -----
(+) Direct Expenses -----
Prime Cost -----

(+) Factory/work overheads -----
Gross Factory Cost -----

(+) Opening stock of work in progress -----
(-) Closing stock of work in progress -----
Factory Cost/ Work Cost -----

(+) Office overhead -----
Cost of Production -----

(+) Opening stock of finished goods -----
(+) Purchase of Finished Goods -----
(-)Goods stock of Finished goods -----
Cost of Goods sold -----

(+) Selling & Distribution Overheads -----
Total Cost -----

(+) Profit -----
Sales -----
Calculation of Tender Price

The price at which the supplier offers his goods for sale, is known as Quotation or Tender –
The tender price should be calculated carefully in the following way –
1. The cost sheet of the produce being for sale, gives the cost of production. If there is a change in
the price of material and cost of labour should be taken into account while quoting a price. s
2. The cost price per unit should be carefully examined.
3. Where quotation is given for a job, the actual material and direct labour costs can be
ascertained and overheads are charged by a percentage selected base.
4. All possible changes in costs over the previous period should be taken in view preparing the
statement.
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Instructions for calculation the tender price –

1. First prepare cost sheet
2. Determine cost per unit
3. In absence of information the percentage is Calculated for factory overhead on direct labour
and office overhead on works cost.
4. Percentage of profit is calculated either on cost or on selling price.
5. The tender price is easily calculated when the percentage of profit and cost per unit is
determined.
OVERHEAD COSTING
Accounting for overheads
Overheads are those indirect, operating costs of a business enterprise which cannot be traced directly
to any specific product, job, or process because they cannot be directly attached or marked to any
specific activity or cost centre.
Overhead Accounting involves: -

A. Classification, Codification & Collection of overheads
B. Allocation, Appointment and absorption of overheads.
A. Classification of Overheads
1. Elements wise Overheads
i. Indirect Material – e.g. Consumable stores, loose tools, etc.
ii. Indirect Labour – e.g. Salary of foremen, store-keeper, supervisors, etc.
iii. Indirect Expenses – e.g. Factory rent lighting, heating, insurance, administration, and selling
& distribution expenses.
2. Function-wise Classification
i. Production or Manufacturing Overheads: - E.g. Indirect material Indirect labour & indirect
expenses
ii. Administration overheads: - Audit fees, postage and telephone
iii. Selling & distribution overheads: e.g. Advertising, showroom expenses, traveling expenses,
etc.
3. Classification According to Behaviour or Variability
i. Fixed Overheads are those which tends to be unaffected by variation in the volume of
output.
E.g. rent and rates, managerial salaries.
ii. Variable Overheads are those which tends to vary in direct proportion to changes in the
volume of output. E.g. indirect material, indirect labour.
iii. Semi Variable overheads are those which are partly fixed and partly variable? E.g.
depreciation, repairs & maintenance, telephone etc.
4. Classification According to controllability
i. Controllable Cost: - Which Can be controlled by the action of a specified members of the
department e.g. variable cost
ii. Uncontrollable Costs: - Which cannot be controlled by the action of specified members of
the undertaking. E.g. fixed cost.
Departmentalization of overheads: -This is the problem of (allocation and apportionment of

overheads to production and service department)
Cost allocation: - The allotment of whole items of cost to cost centers or cost units is called cost
allocation.
Apportionment of cost: - Where the expense is common and related to various cost centers or units,
then it is to be allotted to different cost centers on an appropriate basis. This process is called
Apportionment.
22
Primary distribution of overheads: - This is the process of allocation and apportionment of different
items of overheads to all the departments.
Secondary distribution of overheads: - This is the process of re-distribution of the overheads cost of
service department among the production department.
Methods: -
i. Direct Redistribution
ii. Simultaneous equation method
iii. Step ladder method
iv. Repeated Distribution method
Objectives of Departmentalization
1. Ensures greater accuracy in cost ascertainment.
2. Control of overhead cost
3. Use of different methods of absorption
4. Valuation of work-in-progress
5. Cost of service departments can be ascertained
6. Accurate forecasting and estimation and decision making.
Common Bases of Apportionment of Overheads

Direct Allocation Consumable stores, specific expenses
Floor Area of Department Rent and other building expenses, lighting & heating,
Direct Labour hours or Direct Supervision, Administration Compensation to workers, Holiday
wages or No. of workers Pay, ESI & PF contribution, fringe Benefits. Labour welfare
expenses, Time Keeping, canteen Expenses.
Capital values of building or Depreciation, insurance charges, rent, repairs & maintenance
plant:- etc.
Light Points Lightning expenses
Kilowatt hours/ Electric power
Machine hours
Wight or volume of material or Material handling, stores overheads
value of materials
Technical estimates Power, light, internal transport, managerial salaries etc.
Absorption of overheads
Absorption means distribution of overhead expenses allotted to a particular department over the units
produced in that department. So charging of overheads to cost units is called absorption of overheads.
Determination of overhead rates
1. Actual Rate – Actual overhead 2. Predetermined Budgeted

Rate – Overheads
Actual Base Budgeted Base
Standard Overhead Total overheads for the factory
3. Standard Rate – 4. Blanket Rate –
Standard Base Total quantity of the entire factory
fffffffffffffacfafactory
Under Absorption and over Absorption of overheads
Under Absorption: - If the amount absorbed on predetermined rates is less than the overheads
actually incurred, it is called under absorption or under recovery.
Over Absorption: - If the amount absorbed is more than the actual overheads, it is known as over
absorption or over-recovery.
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Causes of Under/Over Absorption of overheads

i. Error in estimating overheads
ii. Error in estimating quantum of production
iii. Actual hours worked may be more or less than those anticipated.
iv. The basis upon which factory overheads are recovered from production may no longer be
correct on account of changes in prices of materials or wage rates.
v. WIP may not have been charged with its share of overhead cost accounts.
vi. Seasonal fluctuations in overheads from time to time.
vii. Unanticipated changes in methods of production and production capacity.
According Treatment of Under/Over Absorption

i. Writing off to costing P & L A/c: - This is used when account of under or over absorption is
quite negligible or when under absorption is due to abnormal factors like idle capacity,
defective planning, etc.
ii. Absorption in the subsequent year: - Here the under or over absorption amount is
transferred to Overhead Reserve Account or Suspense Account for carry over to the next
accounting year.
iii. Application of supplementary Rates: - Where the amount of under or over absorption is
significant, a supplementary overhead absorption rate is calculated by dividing the under or
over absorbed amount by the actual base. Adjustment is made in the cost of :
a. Work in progress b. Finished stock c. Cost of sales
In case of under absorption, the over head is adjusted by a positive rate, since the amount is to be
added. Over absorption is adjusted by a negative rate, since the amount is to be deducted.
Methods of Absorption of overheads

i. Direct Material Cost Method ii. Direct Labour Cost Method iii. Direct Labour Hour Method
iv. Prime Cost Method v. Machine Hour Rate Method vi. Production Units Method or Rate Per Unit of
Output.
MACHINE HOUR RATE

Machine hour rate is cost of running a machine for one hour. It is different for different types of
machine.
An actual or pre-determined rate of cost apportionment or overhead absorption which is
calculated by dividing the cost to be apportioned or absorbed by the number of hours for which a
machine or machines are operated or expected to be operated.
Comprehensive machine hour rate – when the direct wages of machine operators are included
in machine hour rate, it is known as comprehensive machine hour rate.
Bases of apportionment of different overhead to machines

S.No. Expenses Basis
Fixed Charges
1. Rent and Rates Floor area occupied by each machine including the surrounding
space.
2. Heating and lighting The number of points used plus cost of special lighting or heating for
any individual machine, alternatively according to floor area occupied
by each machine.
3. Supervision Estimated time devoted by the supervisory staff to each machine.
4 Lubricating oil and On basis of past experience
. consumable stores
5. Insurance Insurable value of each machine
6. Miscellaneous expenses Equitable basis depending on facts
24
Variable Expenses
1. Depreciation Cost of machine less residual value spread over its working life.
2. Power Actual consumption as per meter reading
3. Repairs Cost of repairs spread over its working life.
Advantages
1. It helps in analyzing the comparative efficiency of machine and comparing the overheads
charges in various departments.
2. It expresses the quantitative analysis of time and cost of operating of each machine.
3. Managerial decision making is facilitated regarding use of manual labour in place of machines.
4. This is the most scientifically correct way of analyzing production overheads.
5. The cost analysis prepared here is more reliable for management to make decisions.
6. This method provides necessary information for estimating cost of production, laying down
standards and estimating selling price of output.
7. This method can be very effective in valuing the cost of in operational machinery if the costs are
bifurcated into fixed and variable.
Disadvantages
1. Those costs are not at all considered which are not in consideration with hours of operation of
machinery.
2. If manual labor is also equally important part of cost then the results of cost estimation will be
misleading.
3. Because of calculating the hours of operation separately for this method the whole process
seems to be costly.
4. If the production programmes is not pre-decided then estimation of operating hours becomes
difficult.
5. Blanket overhead rates cannot be used here therefore this method becomes more expensive.
25
UNIT-III
CONTRACT COSTING
It is one of the methods of cost accounting. This method is used in such industries where work is
performed on contract basis. Contact costing is a part of specific order costing method where work is
performed as per requirement or specification of the customer or contractee. Contract costing is also
known as “terminal costing” or construction costing. It is used in civil engineering works such as road
making, building construction, dam construction, bridge construction etc. Here the work is not done
within the four walls of the factory, but outside the factory which is called site.
Terminology used in contract costing:

1. Contractor and contractee – the person under the terms of agreement, promises to complete a
particular work is called contractor. The person whom such promise is given is called
contractee.
2. Contract price – it is the consideration given to contractor for the construction work. Normally
contract price of every contract is based on the cost involved in the contract.
3. Work in progress – Entire work done before the stage of completion of contract is work-in-
progress. In other words when the contract is not completed till the end of accounting year the
architect is required to value the work in progress. Such work in progress is classified into two
parts – (a) Work certified (b) Work uncertified.
1. Work certified – that part of work-in-progress which has been approved or certified or
authenticated and valued by the expert called certifier or a valuer, is known as work
certified.
2. Work uncertified - it is that part of work-in-progress which has not been approved by
the expert.
4. Retention money and cash ratio – payment by the contractee is always linked to the value of
the work certified. Generally the monthly, quarterly or annual payments are a percentage of
work certified, e.g. 70 or 90 percent or any other percentage agreed upon between the
contractor and the contractee. At the completion of contract the entire balance amount is paid
to the contractor. Some contractees pay interest on retention money. Retention money serves
as a security with the contractee. It may be adjusted against the defective work found later.
5. Escalation, de-escalation or reserve clause - This clause is generally provided in long term
contracts with a view to protecting both the contract and the contractee against fluctuations in
the prices of inputs to the contract mainly material and labour.
6. Cost plus contracts – cost plus contact is a contract in which the contract price is not fixed at
the time of entering into the contract. The contract price is determined by adding a specified
amount of percentage of profit to the cost allowed in the contract.
26
Contract A/c
Date Particulars Amount Date Particulars Amount

To Material purchased ------------ By Material/Plant transferred to --------------
To Material issued from other contract --------------
stores ------------ By material/plant returned to --------------
To plant issued ------------ stores
To plant purchased -------------- By cash a/c [material or plant
To Direct Labour -------------- sold] --------------
To Indirect labour -------------- By P&L a/c Material/plant stolen --------------
To Direct Expenses -------------- or destroyed
To Indirect Expenses -------------- By material/Plant in hand or at
To Supervision Charges -------------- site --------------
To Sub contract cost -------------- (If contract is completed)
To cost of extra work -------------- By Contractee’s A/c
done -------------- By P & L A/c (Loss) --------------
To P & L A/c (Profit on (If contract is incomplete)
sale) By W.I.P. A/c
(If contract is -------------- W.C.
completed) ………
To P & L A/c (Profit) -------------- W.U.C --------------
(If contract is -------------- ………
completed) -------------- By P & L A/c (Loss) --------------
To Balance c/d (Total
Profit)
To P & L A/c
To W.I.P. A/c (Reserve)
By Balance b/d
WORK – IN – PROGRESS A/c

Dat Particular Amount Date Particular Amount
e
To Contract A/c By Contract A/c (Reserve) ………
W.C. ……… By Bal. C/d ………
W.U.C ……… ………
CONTRACTEE’s A/c
Date Particular Amount Date Particular Amount
1st yr To Balance c/d ……… 1st yr By Cash ………
Dec.3 Dec.
1 31
To Contract A/c ……… ………
2nd 2nd By Bal. b/d
yr yr ………
June Jan.0 By Cash
30 1
27
June
30
……… ………
BALANCE SHEET
As on 31st December x x x 1
By W.I.P. A/c ------
- Cash Received ------ -----------
Rules regarding Transfer of profit – to Profit & Loss A/c

(A) If contract is completed -
The whole amount of Profit or Loss will be transferred to P & L A/c
(B) If contract is incomplete

(i) In case of Loss: The whole amount of Loss will be Trans to P & L A/c
(ii) In case of Profit:-
(a) If the value of W.C. is less than 1/4th of the contract price - Nil
(b) If the value of W.C. is 1/4th or more than it but less ½ of the contract price
= Total Profit × 1/3 × Cash Received / W.C.
C) If the value of W.C. is ½ of the contract price or more than it
= Total Profit × 2/3 × Cash Received / W.C.
In Case of Loss
The excess of debit over the credit items of the contract account is the loss. This loss is to be transferred
to Profit & Loss A/c
Important Points while Preparing Contract A/c

1. The expenses incurred on contract are written on the debit side of contract A/c for e.g.,
Material, Labour, Direct expenses, Indirect expenses, Subcontract cost etc.
2. If any material loss or theft in a contract, it should be recorded in the credit side of Contract A/c
as in the name of Profit & Loss A/c.
3. If any material and plant sold in the contract the sales price is written on the credit side of
Contract A/c and then calculated the profit of loss and it is transferred to P & L A/c. If profit is
there, it should be appeared on the debit side of P & L A/c, and loss should be appeared on the
credit side of P & L A/c
4. Material at site, plant at site, stores at site should be written on the credit side of Contract A/c
5. If only depreciation of plant is given in the sum, then depreciation is written on the debit side of
Contract A/c
6. If work certified amount is not given in the sum, then, following formula is used for calculating
work certified amount –
𝐶𝑎𝑠 𝑕 𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑑 𝑥 100
Work Certified = % 𝑜𝑓 𝑐𝑎𝑠 𝑕 𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑑
7. Depreciation is calculated by following formula when rate of depreciation is not given –
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑝𝑙𝑎𝑛𝑡
Per hour Rate = 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑙𝑖𝑓𝑒 𝑜𝑓 𝑝𝑙𝑎𝑛𝑡
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑝𝑙𝑎𝑛𝑡 −𝑆𝑐𝑟𝑎𝑝 𝑣𝑎𝑙𝑢𝑒
Per hour Rate = 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑙𝑖𝑓𝑒 𝑜𝑓 𝑝𝑙𝑎𝑛𝑡
28
Job Costing
Job costing is that part of cost accounting which finds cost of material, produced under a specific order.
There goods are produced for immediate delivery for each job costing, the cost is calculated separately
for each job order because every work order differs from person to person.
Thus, job costing is that method of cost accounting where cost is determined according to quantity of
product, special material equipment, labour and expenses required to fulfill the order.
Job accounting has the following features

1. It differs order to order.
2. It is based on intermittent production and not continuous.
3. In job costing method, each job is treated as a separate cost unit.
4. In job cost, the final cost of production Is ascertained after the completion of the job.
Objects of Job Costing

1. Job costing helps to find out the profit or loss job wise.
2. Job costing helps to management to recognise profitable or non profitable job work.
3. Costing of old job helps to ascertain the cost of same type of new job work.
4. actual cost is compared to standard cost in job costing method which helps to control the cost in
case of repeat job order.
PROCEDURE OF JOB COSTING

The following procedure is adopted in case of job costing method –
1. Job Number - First of all each job is given a separate number for its identification.
2. Production order - Production order is a written order given to for men to start the job. In this
order job number, quantity to be produced design, specific requirement time etc. are
mentioned.
3. Job Cost Sheet— A separate job cost sheet is prepared for each job. This job cost sheet carries
the details of expenditure incurred on that particular job.
4. Completion Certificate - After completion the job. The production department sends the job
completion certificate and a copy of job cost sheet to costing department.
Difference between Contract Costing and Job Costing

The difference between these two may be cleared as follows-
S.No Bases of Contract Job Costing
Difference
1 Nature or work It is related to contraction It is related to production process.
generally
2 Amount and Contract is having huge amount Job is related for shorter period and
Time and longer period small amount.
3 Sub contractor In case of contract work The subcontractor may be contracted
and their cost will be part of contract
costing.
4 Industry Contract costing method is used in It is applied in industries which
contraction industry e.g., Road manufacture products or provide
services against specific orders such as
printing press, furniture makers
general engineering concerns etc.
5 Work site In the contract work is done out Here works is completed in the
the work shop generally. Place of workshop only
29
contraction is the work site/work

shop.
6 Determination In this method profit or loss is also In this method profit or loss is
of profit or loss determined on incomplete calculated after the completion of job
contract
7 Nature of Most of the expenses under In Job costing expenses may be direct
Expenses contract costing are direct in and indirect both.
nature.
Batch Costing
Meaning
There are some such products whose cost of production can be calculated unit wise (for an individual
unit). For example bolts nuts, pins, screw bread, biscuits, etc. In such a case firms which are producing
these products, use the batch costing method in batch costing each batch of production is treated as an
separate job work and cost is determined accordingly.
Procedure of Costing
Batch costing does not differ from job costing in respect of accounting procedure. Like job costing each
batch is given a separate number and cost sheet is prepares. The overheads are distributed by a proper
method.
In this method cost of plant and its setting is treated as fixed overheads and it is distributed among the
batched by the proper methods.
Economic Batch Quantity

In this method that quantity of product is calculated which make the cost of batch economical or least?
Thus, economic batch quality is that best possible size of output which gives that minimum cost and
maximum product.
To calculate the economic batch quantity the following two types of cost are considered –
1. Setting cost of plant.
2. Cost of shortage – Rent of warehouse, insurance expenses, interest on borrowing
2𝑥𝑈𝑥𝑆
Economic Batch Quantity = √ 𝐶
U = No. of units to be produced in a year
S = Set up cost per batch
C = Carrying costs per units
OPERATING COSTING
Meaning of Operating Costing –
Operating costing is adopted by those businesses which operate services. These service organizations
render services instead of producing & their main feature. The service may be sold by the enterprises to
consumers, e.g. Bus companies, tramways, railways, airways & shipping companies, hotels, banking
finance and consultancy firms, electricity boards, gas, water and other utility undertakings. The service
may also be used within the enterprise e.g. cafeteria, boiler house etc. Operating costing is a method of
cost accounting designed to determine the cost of services, and hence justifiably also called services
costing.
According to CIMA England “Operating costing applies where standardized services are provided
either by an undertaking or by a cost centre within an undertaking”.
30
Normally, operating costs are period costs. Expenses accumulated for a period say, quarterly or
monthly are related to the quantum of services rendered during the period. In some cases, however,
operating costs could also be sold as terminal costs. When a plane is chartered for a specific trip, its cost
would be calculated as if it is an independent job.
Characteristics –
The following characteristics are usually found in industries where operating cost is used –
i) Services rendered to customers are of unique type.
ii) A large proportion of the total capital is invested in fixed assets & comparatively less working
capital is required.
iii) The distinction between fixed cost and variable cost is of particular importance because the
economics & scale of operations considerably affect the cost per unit of service rendered. For
example, fixed cost per passenger will be lower if buses in Transport Company run capacity
packs.
This method of costing can be used in the following service undertakings –

i) Transport services – Bus, truck companies, Tramways, Railway, Airlines.
ii) Supply services – Gas Company, water supply, electricity, boiler House etc.
iii) Welfare services – Hospital, Canteen, Hotel, and Public Library.
iv) Public services – Road maintenance, Road lights & other public utility services etc.
Cost unit – The selection of suitable cost unit may sometimes prove difficult. The cost units may be of
the following two types –
i) Simple cost unit.
ii) Composite cost unit.
Simple cost unit – The unit may be simple as under unit costing as per bed in case of hospital, per
1000, liters in case of water works, per child in one of the schools, per cup of tea or per dish in case of
canteen services etc.
Composite cost unit – In this type more than one unit are combined together as per passenger km in
case of bus companies.
S.No. Undertaking/Business Cost Units

1 Transport Business, Tram, Railways, Roadways Per-passenger-km, per seat-km.
2 Trucks and other loading vehicles. Per-tone or quintal-km.
3 Hospital – Indoor Per bed-day
- Outdoor Per patient-day
4 Electricity supply Per Kwt-hour
5 Water supply Per Gallon-hour, per 1000-litres
6 Canteen Meals per-person, per cup-tea etc.
7 Boiler House Per cub centimeter gas or steam
8 Hotel Per-room-day, per-passenger-day
9 Cinema, Theater etc. Per-person per show
10 Road Maintenance Per-km.
Build-up of Costs –
After determining the unit of cost to which the total expenditure is to be apportioned, the process of
collecting the necessary data about costs of operating the service is carried over. The data after
collection are classified under two heads –
i) Fixed or standing charges ii) Variable charges.
31
This is done so that greater control can be exercised over new costs. In whatever quantum the service is
rendered, fixed cost or standing cost shall not change and the management should concentrate over
such costs.
The expenses which vary according to a change in the operating level are grouped separately and
sometimes such expenses are placed in sub-groups like (i) Maintenance charges (ii) Running Expenses.
This is done to have a better idea about the cost structure. Costing in some specified undertaking has
been explained in detail.
Transport Costing –
Transport is one of the service performed by air, water, railways, tramways roadways, goods carries,
etc. such businesses naturally take to the method of operating costing, with a view to finding the total
cost of each vehicle and then applying it to the unit cost. The cost information helps not only in charging
for the service against departments and outsider customers, but in making comparison between
vehicles inter se and alternative modes of transport.
To calculate the operating expenses following work should be done –

i) Collection of service expenses for specified period.
ii) Division of collected expenses between fixed & variable expenses.
iii) Calculation of units for service rendered.
iv) Calculation of per unit cost by dividing total expenses with units.
v) Adding the profit in per unit cost and take the decision as for fixing rates per passenger per
kilometer or per ton km. etc.
Collection of operating cost –

For each vehicle or for generator or pumping set etc. a log book is maintained to record various details
during a given period of time. Particulars regarding capital, maintenance and running costs, trips made,
fuel & oil supplied; worker’s time spent and exceptional delays are invaluable for working out the cost
services. These enable the management to make suitable allocation of vehicles and thus avoid
unnecessary or duplicate trips and waste or idle running capacity.
From following specimen given it will be seen clearly –

Vehicle No. : Operating Cost Stationed at:
Statement
Carrying capacity : January 2009 Route No. :
Budget Actual
Particular Total Per ton Km. Total Per ton Km.
A. Standing Charges: Rs. Rs. Rs. Rs.
1. License fee
2. Insurance
3. Road tax
4. Administration
5. Depreciation, if charged on time basis
6. Interest
Total
B. Maintenance Charges: Rs. Rs. Rs. Rs.
1. Garage expenses
2. Repairs & overhauling
3. Oiling & servicing
4. Spare parts & components
Total
32
C. Running Charges:
1. Petrol or diesel
2. Oil & greases
3. Running staff salaries
4. Wear & tear of tyres, tubes
5. Insurance of transit goods
6. Vehicle depreciation if charges on
mileage run basis
Total
D. Total Operating Cost
(A+B+C)
E. Total Ton-kms. or passenger-km.
F. Cost per ton-km or passenger-km.
G. Revenue Earned
H. Net Profit
Remarks if any Cost Accounting
Classification of Expenses Accumulated
Operating expenses for a specified period are classified into two parts –
i) Fixed charges, & (ii) Variable charges.
i) Fixed charges – License fee, insurance, road tax, garage rent, salary of the supervisory and
office staff, director’s fees, interest on capital, wages of the driver, conductor and cleaner etc. (if
paid on time basis).
ii) Variable charges – Depreciation of vehicle, cost of petrol, diesel, mobile oil, grease and other
lubricants, wages of drivers and cleaners (if paid on mileage run-basis), Repairs and
overhauling expenses. Oiling and servicing charges, wear and tear of tyres and tubes, Gas and
electricity charges, Insurance on transit goods.
Some authors have allocated these expenses in three parts as under –

i) Standing Charges (Fixed) – License fee, insurance, road tax, interest on capital, depreciation of
vehicles, and salary of the supervisory and office administration staff.
ii) Maintenance charges (Semi Variable) – Repairs and renewals, Garage and terminal office
rent, rates etc. staff salaries of garage and terminal office, spare parts, oiling and servicing
charges (routine).
iii) Running Charges (Variable) – Cost of petrol, diesel, mobile oil, grease and other lubricants,
depreciation of tyres, tubes and battery, Insurance of transit goods, wages of drivers and
cleaners (if paid on mileages run basis).
Calculation of Ton Kilometers or per Passenger Kilometers

In transport business before calculation of running expenses. It is necessary to know the meaning of the
words ton kilometer or passenger kilometer. There meaning is being explained here under –
a. Ton Kilometer – It refers to the calculation of cost of carrying one tone load to one
kilometer.
b. Passenger Kilometer – It refers to the estimation of cost incurred on carrying a passenger
one kilometer.
Calculation of Operational Cost

Before calculating operation cost fixed and variable expenses are added. Thereafter following formula
is used for its estimation –
a. In relation to a transport company carrying passengers –
𝑇𝑜𝑡𝑎𝑙 𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑎𝑛𝑑 𝑅𝑢𝑛𝑛𝑖𝑛𝑔 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠
1. Operating Cost per Km = 𝐾𝑖𝑙𝑜𝑚𝑒𝑡𝑒𝑟
33

2. Operating cost per passenger Km = 𝑇𝑜𝑡𝑎𝑙 𝑝𝑎𝑠𝑠𝑒𝑛𝑔𝑒𝑟 𝑘𝑚
b. In relation to a goods carrier transport company –
1. Operating Cost per Km =
𝑇𝑜𝑡𝑎𝑙 𝑡𝑜𝑛 𝑘𝑚

2. Operating cost per ton Km = 𝑇𝑜𝑡𝑎𝑙 𝑡𝑜𝑛 𝑘𝑚
34

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CLASS:-B.Com.

IV Semester SUBJECT: - Cost Accounting

Class – B.Com IV Sem. (All)

Unit-I Cost: Meaning, Concept and Classification. Elements of Cost,

Unit- II Unit Costing, Preparation of Cost Sheet and Statement of Cost

Unit – III Contract and Job costing, operating costing.

Unit – IV Process Costing (Including Inter process profit and Reserve).

Unit – V Marginal Costing- Profit – Volume Ratio, Break – Even Point,

NATURE AND CHARACTERISTICS OF COST ACCOUNTING

SCOPE OF COST ACCOUNTING

Difference between cost accounting and financial accounting

14 Accounting, otherwise it is voluntary to Companies Act, and Income-tax Act, it is

FUNDAMENTAL PRINCIPLES OF COSTING

OBJECTS AND FUNCTIONS OF COST ACCOUNTING

TECHNIQUES AND METHODS OF COSTING

ANALYSIS AND CLASSIFICATION OF COST

ANALYSIS OF TOTAL COST

CLASSIFICATION OF COST AND COST CONCEPT

SIGNIFICANCE OF COST ACCOUNTING

ADVANTAGES OF COST ACCOUNTING

CHARACERTISTICS OF A GOOD COSTING SYSTEM

Objectives of Material control

Principles or Essentials of Material Control

Functions of purchasing department:

Stores Organization and control

Techniques of Inventory Control

Factors which influence stock levels are

ii. Physical stock verification which is of two types: -

Advantages of Perpetual Inventory System

6. Budgetary Techniques for Inventory standards:-

Pricing of Materials Issued

Treatment of material Wastage/ Losses

Where, A = Annual consumption

Maximum level = Reorder level + Reorder Quantity – (Minimum consumption x Minimum

ACCOUNTING FOR LABOUR

Classification of Labour Cost

Labour Cost Control Factors

Organization for Accounting and control of Labour cost

Causes of Labour Turnover

iii. Lack of safety measures, medical facilities, transport facility, etc.

Reduction and Control of Labour turnover

Methods of Measurement of labour turnover: -

ii. Replacement Method:

iii. Flux Method: -

Disadvantages of overtime working:-

Various Incentive Schemes

4. Taylor’s different Piece Rate Plan: - In this system

662/3% to 100% Bonus increases in steps and rises to 20% at

6. Gantt’s Task and bonus Plan: - In this plan,

Types of group Bonus Plans

Co-Partnership and Profit sharing

Actual Wage according to % of efficiency

Actual Wage according to % of efficiency

Definition of Unit or Output costing

Objectives of unit or Output costing

Elements of Cost under unit or output costing

Methods of determining unit cost