1 intgroduction to ma

8/8/2019 1 Intgroduction to MA

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Introduction to Costing

Kailashinie ThiranagamaB Sc Accounting Sp (First Class Honors)- University of Sri Jayewardenepura

Passed Finalist (Institute of Chartered Accountants of Sri Lanka)


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Cost Accounting

Cost accounting is concerned with and

recording, classifying summarizing

costs fordetermination of costs ofproducts or services, planning, controlling

and reducing such costs and furnishing of

information to management for decision

making


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Key Terms

Cost-

Cost means the amount of expenditure(actual or notional) incurred on, or attributableto, a given thing

Cost Objects Any activity or thing for which a

separate measurement of cost requiredResponsibility Centers An organization unit

headed by a manager who is responsible for theactivities of the unit

Cost Centers A unit or department for whichcost is ascertained before attributing to a specificcost unit


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Classification of Cost

1.Cost classification for inventory

valuation and profit measurement

purpose

(i) Direct Cost and Indirect Cost

(ii) Manufacturing and Non Manufacturing

Cost

(iii) Product Cost and Period Cost

(iv) Job Costs and Process Cost


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2. Cost classification for decision Making

(i) Fixed, Variable, Semi Fixed, Semi

Variable Cost(ii) Relevant and Irrelevant Cost

(iii) Sunk Cost

(iv) Opportunity Cost(v) Marginal Cost


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3.Cost classification for control

(i) Controllable Cost

(ii) Uncontrollable Cost


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1.Cost classification for inventory valuation

and profit measurement purpose


Direct Cost

Cost that can be specifically andexclusively identified with a specific cost

object/unit in an effective manner

(a) Direct Material Cost(b) Direct Labour Cost

(c) Direct Expenses


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Indirect Cost

Costs that cannot be specifically orexclusively, identified with a cost object in

an effective manner

(a) Indirect Material Cost(b) Indirect Labour Cost

(c) Indirect Expences




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(ii) Manufacturing Cost and Non ManufacturingCost

Manufacturing Cost

Costs incurred for manufacturing a productDirect Material Cost xxx

Direct Labour Cost xxx

Direct Expenses xxx

Prime Costs xxxManufacturing overhead cost xxx

Total Manufacturing cost xxx


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Non Manufacturing Cost

Costs incurred for the activities other than

manufacturing of a product


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valuation and profit measurement purpose

(iii) Product Cost and Period Cost

Product Cost

Costs that are identified with goodspurchased or produced for resale

Period Costs

Costs which are attached to a specificperiod


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valuation and profit measurement purpose

(iv) Job Cost and Process Cost

Job Cost

Costs which are attached to a specific jobProcess Costs

Costs which are attached to a manufacturing

process


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2.Cost classification for decision making

(i) Fixed, Variable, semi fixed, semi

variable cost

Variable Cost

Costs that are vary in direct proportion to

the level of activity (production volume)

TVC

Activity Level

TVC

Activity Level

CostTotal Variable Cost Variable Cost/Unit

VC


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Fixed CostsCosts that remains constant over wide

ranges of activity for a specific time period

Fixed Cost/unit Total Fixed Cost

Activity Level Activity Level

CostCost


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Semi Fixed cost

Costs that jump in to different fixed levels at

critical [points of activity within short run

Cost

Activity Level

Semi FC


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Semi Variable Costs

Costs that consists of both variable and

fixed component


Activity Level

CostSemi Variable Cost


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(ii) Relevant Cost and Irrelevant Cost

Relevant Cost

Costs that differ among alternativecourses of action

Irrelevant Costs

Costs that do not differ among alternativecourses of action


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(v) Sunk Cost

Cost that have already been incurred for the

acquired assets

(iv) Opportunity Costs

Expected benefits of the opportunity that is lost

or scarified when choice of one course of the

action. This cost is relevant for the decision(vi) Marginal Cost

Additional cost of one extra unit of output


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3.Cost classification for control

(i) Controllable Cost

Cost that are reasonably subject to regulation by

the manager and he can influenced on cost

(ii) Uncontrollable Cost

Costs that are not reasonably subject to

regulation made by the manager with whose

responsibility those cost are being identified.


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Exercises

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