FUNDAMENATL COSTING

History of accounting system :-

Financial accounting

System

Cost accounting

system

§ Time

§ Person

§ Place

§ 1494

(i.e.fifteenth century)

§ Luco Pacioli

§ Italy

§ Seventeenth century

§ Royal wallpaper manufactory

§ France

Then later with industrial revolution in 19^th century cost accounting got its importance.

Let us discus some terminologies in looking very similar :-

(i)

Cost	costing	Cost accounting	Cost accountancy
The amount of expense incurred or attributed to particular product or activity is called cost.	After expense we should ascertain the cost, this ascertainment of cost is known as costing.	After ascertainment we should keep a record of it, this recording & preparing periodical statement is called cost accounting.	Here it is the art of applying the costing & cost accounting technique to arrive at some conclusion or the profitability is called cost accountancy.

(ii)

Cost	Price	Value
The expense incurred to produce a product or to render a service.	The amount paid by the purchaser in exchange of product or service.	The relevant worth of the commodity to an individual at a particular point of time.
It is from the producer's point of view.	It is from the purchaser's point of view.	It is from the end user's point of view.
e.g. :- (i)For a Toy- cost incurred to produce it. (ii)In case of Dhoni, captain of India cricket team- The cost incurred by him to come to the position of today.	e.g. :- (i)For a Toy- the amount paid for purchasing. (ii)In case of Dhoni, captain of India cricket team- The amount paid by IPL.	e.g. :- (i)For a Toy- worth of the toy to the child. (ii)In case of Dhoni, captain of India cricket team- Worth of Dhoni for us, the viewers.

Method of costing:-

Method of costing depends upon for which industry we are going to do the costing. i.e. the nature of the business.

	Specified by the customers		Standardized production
	Big assignment	Small assignment	Single process	Series of process
Single unit of production	· Contract costing · These are normally more than one year. · e.g. any infra structure construction.	· Job costing · Period- less than one year. · e.g. interior decoration of marriage hall	Not applicable	Not applicable
Similar units of a single product.	Not applicable	· Job costing, batch costing · e.g. printing of marriage card.	· Unit costing, batch costing. · e.g. Toy making	· Process costing. · e.g. garment, paper industry.
Different products.	Not applicable	Not applicable	· Joint & by-product costing · e.g. ammonia & benzol obtain on carbonizatn. of coal	· Joint & by-product costing. · e.g. see next page.

Joint & By-product costing

Joint product	By-product
In refining of crude petroleum the joint products are gasoline, fuel oil, lubricant, paraffin, kerosene.	In manufacturing of sugar we are getting sugar as main product and also we are getting "molasses" a brown liquid which is a by-product.

How same expenses treated differently in cost accounting:-

(1) Packing

Primary packing

Secondary packing

¨ To protect the quality

¨ e.g. primary plastic tube to contain the paste.

¨ Treated as direct material

¨ To attract the customer

¨ e.g. the outside paper cover with the brand name.

¨ treated as selling overhead.

(2) freight

Inward freight

Outward freight

¨ To bring raw material to factory.

¨ Treated as direct expenses.

¨ For departure of finished good from factory.

¨ Treated as selling overhead.

(3) Discount

Trade discount

Cash discount

¨ To promote sales

¨ Treated as selling overhead.

¨ To make the customer prompt payment.

¨ Ignored in costing.

(4) Tax

Direct tax	Indirect tax
¨ Income tax ¨ Ignored in cost accounting.	On material	On production	On selling
	¨ Custom duty ¨ Included in direct material.	¨ Excise duty ¨ Treated as production overhead.	product	Service
			Sales tax/ VAT	Service tax
			¨ Treated as selling overhead.