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Cost Accounting
Syed Sohail Ahmed M.Com, DAIBP, FCMA,
FORM OF BUSINESS
Trading
Service
Manufacturing
Paid Shop Rent for three months at Rs 5.000 per month. Bought Furniture for Rs 12,000 cash. Purchased goods for Rs 2,000 cash. Purchased goods from AAA Store Rs 5,000 & paid cash. Sold goods for Rs 7,000 cash. Sold merchandise to HHH Traders for Rs 13,000. Paid advertising expenses Rs 500. Paid Cash Rs 8,000 to J.J. Store on account. Purchased Equipment from Modern Equipment House Rs 15,000. The payment of Rs 3,000 was made & Afaq has promised to pay the remaining amount in a week. Received Cash from Noble Store Rs 22,000. Withdrew cash for personal use Rs 2,000.
Purchased Office Supplies (Stationery) for Rs 2,000 on credit from P Stationers. Rendered services and collected cash Rs 24,000. Paid Electricity Bill for the month Rs 1,500
Rendered services and sent bill to Noble Traders Rs 47,000
Received Cash from Noble Traders Rs 22,000. Withdrew cash for personal use Rs 2,000.
MANUFACTURING Transactions
During the month, the following transactions took place in City Sugar Mill.
Purchased Materials on a/c from Arshad Co. Rs 35,000. Materials issued to production Rs 29,000 & Supplies 5,000 Freight paid in cash for material received Rs 1,000. Materials returned to the vendor during the month Rs 600. Payroll for the period was distributed as: direct labour Rs 38,000, indirect labour balance of payroll. Employee payroll deductions: Income tax 10% & EOBI 1% Employer s contribution: Social security 6% and EOBI 5%. Depreciation: building Rs 4,000, machinery Rs 6,000 Factory overhead charged at Rs 30 per direct labour hour. Insurance expired Rs 2,000. Factory overhead charged to production at 2.40 per direct labour hour. 20,000 direct labour hours were used. Cost of goods manufactured was Rs 89,000. Goods costing Rs 70,000 were sold on a/c for Rs 120,000.
systematic, disciplined study to analyze and ascertain cost of product, service or idea. of cost resulting reduction of cost by identifying the abnormal losses and leakage of material usage, wastage of labour time and overhead cost.
Control
Cost Definition
Commonly
used as an amount require to buy something or to pay for service. to cost accounting, cost is defined with reference to classification, such as by function, Behavior, Time, attribute & Control etc.
According
Cost Classifications
By
Nature or Function
Production
Selling & Distribution
By
Behaviour
Cost Classifications
By
Time
By Management
By
Attribute
Direct
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Material Labour
= Variable = Variable
Factory
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Raw Material Raw Cotton Gypsum Clay Iron Ore Wheat Oil Seed Bamboo Pulp Crude Oil
Finished Product Cotton Bales Cement Iron & Steel Flour Oil & Ghee Paper
Petrol, Diesel & Gasoline
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Direct Material
Direct Material Purchased from supplier and placed to Store (Material Debit & A/Payable Credit) Defective Material Returns to Supplier
(A/Payable Debit & Material Credit)
Excess Material Returns back to Store from Production (Material Debit & W.I. Process Credit)
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Material
Requisition (Evidence)
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Direct Labour Machine Operator Car Driver Faculty Telephone Operator Cashier Pilot Advocate Chemist
Industry Factory Plant Rent a Car University P.T.C.L. Bank Airline Solicitors firm Pharmaceutical
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Indirect Labour Depreciation Insurance Factory Repair & Maintenance Indirect Material - Supplies Fuel Electric & Power Telephone
Fixed Fixed Fixed Variable Variable Variable Semi Variable Semi Variable
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Cost of Direct Material Consumed Direct Labour Cost incurred (4000 Hr) Factory Overhead Applied (@ 30) Total Manufacturing Cost Work in Process Jan.1 Work in Process Jan.31 Cost of goods manufactured
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Rs
Finished Goods Jan. 31 Cost of goods sold Adjust. of under /over applied FOH Cost of goods sold (Adjusted)
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Sales Revenue Cost of goods sold Gross Profit Selling & Distribution Exp. Administrative Exp Net Income
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Costing Documents
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Functions:
Issue Material Purchase Requisition TO Purchase Deptt To prepare Goods Received Note Proper management for issuance to production depttr.
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Functions:
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ORDERING COST
Costs relates to Placing order till receipt of Physical Material,
Salary & allowances etc. of Purchase Deptt. Depreciation - fixed assets Pur. Deptt. Tel. fax. Telex charges Advertisement Stationery AND FREIGHT
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Salary & allowances etc. of Store Deptt. Depreciation - fixed assets Store Utilities Charges Stationery AND INTEREST ON BANK FINANCE
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Scrap Material
Scrap Material (Debit) , F.O.H Loss in value (Debit) & Work in Process (Credit)
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Spoiled Work
Material issued to Production, Labour cost of production and F.O.Head applied to Production
W.I.P. Material (Debit) and Material (Credit) W.I.P. Labour (Debit) and Payroll (Credit) W.I.P. FOH (Debit) and FOH Appiied (Credit)
General Work Loss charged to Production (FOH) Specific Order Loss charged to Order
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Documents - Materials
Material Requision
Prepared by: Production Department Issued to: Store Department Purpose: Request for issuance of Mterial Nature: Internal Document Simple format Prepared by: Store Department Issued to: Purchase Department Purpose: Request for Purchase of Material Nature: Internal Document Simple format
Purchase Requisition
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Documents - Materials
Purchase Order
Prepared by: Purchase Department Issued to: Vendor (Supplier of Goods etc.) Purpose: Order for purchase of material Nature: External Document Formal Letter Head Prepared by: Vendor Issued to: Accounts Department Purpose: To demand payment of the material sold
Nature: Standard Format
Invoice
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Documents - Materials
Debit Note
Prepared by: Store Department Issued to: Vendor Purpose: To inform about quantity of goods being return
Nature: Formal
Credit Note
Prepared by: Vendor Issued to: Accounts Department Purpose: Proof of the goods received and purchaser will not have to pay for them.
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Prepared by: Accounts & HR Department Base Wage Payment Period: Attendance (Time In Out) Overtime: Premium % Downtime: Record from Production deptt.
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Past Record, Forecast for future. Activities: To be Attended Payment Vouchers Bills etc.
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Costing Systems
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Costing Systems
Standard Costing Standard Products for all Job Order Costing Specific Products per Order
Batch Costing
Service Costing
Contract Costing
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Standard Costing
Flour
Cloth
Ghee
Cement
Crockery
Electronic Goods
Automobiles
Computer
Books etc
School & College Furniture
Toys
Office Furniture
Readymade Clothing
Electric Fittings etc.
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Tailoring
Vehicle Repairing
Specific Furniture Tool Repairing Special Purpose Vehicle Draper
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Batch Costing
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Service Costing
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Contract Costing
Roads
Motorways Bridge Plaza Societies, Housing Schemes
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Managerial Accounting
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Managerial Accounting
It
refers to the process of Identifying, Measuring, Analyzing, Interpreting and communicating information in pursuit of an organizations goal
.
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Management Functions
Planning Controlling
Organizing
Decision
Making
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Planning
A process of making Plan for future course of action. Examples:
Other Plans
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Which product or services should be sold Where should they be sold What are the responsibilities of each management position Who should be hired to fill these positions How much does it cost to manufactdure a product or offer a service. What is the most profitable combination of products or services What will happen to profit if selling price are increase or decrease. How much operating capacity is needed in the form of people, fund, inventory and fixed assets
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Material ( 3 Kg. @ Rs 100 per Kg.) = 300 Labour (4 Hours @ Rs 200 per hr) 800 Factory overhead ( 4 hrs x Rs150*) 600 Total Production Cost 1,700 Selling & Distribution Exp (20%) 340 Administrative & General Exp (10%) 170 Finance Cost (15% of Rs 2,210) 332 Total Product Cost 2,542 Profit on Product (20%) 508 Price of the Product (Ex- Sales Tax) 3,050
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C o n t r o l
Performance Evaluation is an essential managerial step needed to identify slack areas and reward for good results.
Controlling with managerial accounting is defined as the comparison of actual results with the planned performance (standards) and to take corrective measures to Guard against recurrence in future.
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Develop
a Product or Service
Prepare
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Organizing
Plans are only piece of papers until they are implemented. The Organizing function provides the structure within which management will work to implement the plans. It identifies the work to be performed, the Persons responsible for the various activities and the relationship exists between the different parts of the entity.
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Directing
Deals with day to day management of the entity. Actions, Decision Making, Communication and leadership are combined in the Directing Functions. Problems are solved, questions are answered, disagreements are resolved.
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Decision Making
Management
decision making regardless of the level with in the organization are the time dimension involved is concerned with the selection between alternatives.
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Which Product to Produce and to stop How to Produce them Make or Buy How to Sale them Method feasible What Prices to charge Refer Market From where to buy Raw Material Cost When to Replace Equipment CBA How to allocate scare resources Max. Whether to expand production capacity
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Make
Shut
or Buy Decision
down Operation
Product
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Good Luck
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