PRESENTATION BY - AMIYA RANJAN SAHOO

 

 

        

Presentation by :     AMIYA RANJAN SAHOO

Course :       PCC

FROM – ORISSA

                            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.

 

 

(5) Rewards

 

 

Incentive	Dividends
¨  Rewards for rendering their extra service. ¨  Incentive to workers ¨  Production/administration /selling overhead.	¨  Rewards for lending their money as capital. ¨  Dividends to share holders ¨  Ignored in costing

 

(6) Advertisement

A.

¨  To promote sales.

¨  Treated as selling overhead.

B.

¨  For recruitment of staffs.

¨  Treated as administration overhead.

C.

¨  For allotment of shares.

¨  Ignored in costing.

D.

¨  For tenders to purchase material.

¨  Treated as production overhead.

E.

¨  For any other social cause.

¨  Treated as administration overhead.

 

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PRESENTATION BY V.SARADHA

                                   

 

 

 

        

Presentation by :           V. SARADHA

Course :                           PCC

Appearing on :              November 2008

METHODS OF COSTING

 

 

BATCH COSTING:

          

Where the output of the job consists of homogeneous (similar) units, a lot of similar units may be used as a cost unit for ascertaining cost. Such lot or collection of units is called BATCH.

 

It is a form of Job costing, wherein cost is ascertained for a collection/ lot of units called a BATCH. Separate cost sheets are maintained for each batch of products by assigning a batch number.

 

COST PER UNIT = TOTAL COST FOR THE BATCH / NO. OF ITEMS PRODUCED IN THE   BATCH

  

 

 

  

OPERATING COSTING:

 

It is the method of ascertaining the costs of providing/ operating /rendering a service.

 

Applicable to all undertakings that provide services rather than produce commodities. This method is usually adopted in the case of Transport companies. Gas and water works departments, Electricity supply companies, canteens, hospitals, theatres, schools, etc., that are engaged in providing services.

 

Cost units:

 

S. NO.	DETAILS	COST UNIT
1.	Hospitals	Patient Days, Room Days
2.	Hotels	Guest Days, Room Days
3.	Passenger Transport	Kilometers or Passenger Kilometers
4.	Cargo Transport	Quintal Kilometers or Tonne Kilometers
5.	Canteens	No. meals served
6.	Electricity Supply Companies	Kilowatt Hours
7.	Boiler Houses	Quantity of steam raised
8.	Cinema Houses	No. of tickets, No. of shows

 

  

OPERATION COSTING:

 

1. Where a process consists of distinct operations, the method of costing applied is called Operation costing. It is concerned with the determination of the cost of each operation rather than the process.
2. Operation costing is a refinement of Process costing used in industries where processes may not be continuous or where input – output tracing may be possible.
3. Operation costing offers better scope for control. It facilitates the computation of unit operation cost at the end of each operation by dividing the total operation cost by total output units.

                

COST PER UNIT = TOTAL OPERATION COST /  TOTAL OUTPUT UNITS

                 

 

 

 

4. Sometimes operation costing is considered as the basic costing method for standardized output or services. Process costing and service costing are then taken as its sub – methods

 

PROCESS COSTING:

 

Process is a distinct stage in manufacturing or production wherein raw material is converted from one identifiable form into another, before it is finally converted into the saleable final product.

 

Process costing is a method of costing used in industries where the raw material passes through two or more processes before being converted into a final product. It is defined as "a method of cost accounting whereby costs are charged to processes or operations and averaged over units produced".

 

This type of costing method is useful in manufacturing products like steel, soap, chemicals, rubber, vegetable oil, paints and varnish etc., For these products, the production process is continuous and the output of one product becomes the input of the following process till completion.

 

JOINT AND BY PRODUCT COSTING:

 

JOINT COSTING:

 

When a common manufacturing process leaves to the emergence of two or more finished products we would be looking at Joint product and By product costing.

 

When the two products have equal economic significance, they are called Joint Products.

When the two products have different economic significance, the product with higher significance is called main product and the one with a lower significance is called By Product.

  

1.      1. The split of point is a point at which the products emerge as separately identifiable products.

2.      2. Cost incurred before the split of point are known as pre-split of cost and are jointly or commonly incurred on the products.

3.     3.  The cost incurred after the split of point are referred to as post split of cost and are specific cost in nature.

4.      4. The pre split of cost is apportioned and post split of cost is allocated,

 

Principle:

The essence of joint product costing is the distribution of joint cost to the joint products.

 

 BY PRODUCT COSTING:

 

When a manufacturing process results in a production of two or more products and one of the products has greater economic significance than the other. The product with the greater economic significance is called Main Product and the one with the lower significance is called By Product.

 

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