This document defines key concepts and terms related to cost accounting. It provides definitions of cost, cost accounting, and costing from various sources. It also outlines the objectives, features, reasons for emergence, classification, and limitations of cost accounting. Distinctions are made between cost accounting and financial accounting as well as cost and management accounting. The document covers a wide range of topics related to cost accounting concepts and principles.
2. COST:COST:
According to Shillinglaw,it isAccording to Shillinglaw,it is
the amount of resourcesthe amount of resources
given up in exchange ofgiven up in exchange of
some goods and services.some goods and services.
3. According to ICWA,the amount ofAccording to ICWA,the amount of
expenditure (actual or notional)expenditure (actual or notional)
incurred on, or attributable to aincurred on, or attributable to a
specified thing or activity.specified thing or activity.
4. According to The Committee onAccording to The Committee on
Cost Terminology of the AmericanCost Terminology of the American
Accounting Association , theAccounting Association , the
foregoing, in monetary terms ,foregoing, in monetary terms ,
incurred or potentially to beincurred or potentially to be
incurred in the realisation of theincurred in the realisation of the
objectives of management whichobjectives of management which
may manufacturing of a product ormay manufacturing of a product or
rendering of a service.rendering of a service.
5. Definition of Cost AccountingDefinition of Cost Accounting
Cost accounting is the classifying,Cost accounting is the classifying,
recording, and appropriate allocation ofrecording, and appropriate allocation of
expenditure for the determination ofexpenditure for the determination of
the costs of products or services, andthe costs of products or services, and
for the presentation of suitablyfor the presentation of suitably
arranged data for purposes of controlarranged data for purposes of control
and guidance of management.and guidance of management.
6. According to Morse ,it is the processingAccording to Morse ,it is the processing
and evaluation of monetary and non-and evaluation of monetary and non-
monetary data to provide information formonetary data to provide information for
external reporting, internal planning andexternal reporting, internal planning and
control of business operation and specialcontrol of business operation and special
analysis and decisions.analysis and decisions.
7. Features of Cost AccountingFeatures of Cost Accounting
1.1. It is a process of accounting for costs;It is a process of accounting for costs;
2.2. It records income and expenditure relatingIt records income and expenditure relating
to production of goods and services ;to production of goods and services ;
3.3. It provide statistical data on the basis ofIt provide statistical data on the basis of
which future estimates are prepared andwhich future estimates are prepared and
quotations are submitted;quotations are submitted;
4.4. It is concerned with cost ascertainment,It is concerned with cost ascertainment,
cost control, and cost reduction;cost control, and cost reduction;
5.5. It establishes budgets and standards;It establishes budgets and standards;
8. 6.6. It gives right information to right person atIt gives right information to right person at
the right time;the right time;
7. It is both a science and an art;7. It is both a science and an art;
8.8. It is complementary/supplementary toIt is complementary/supplementary to
financial accounting;financial accounting;
9.9. It uses accounting principles andIt uses accounting principles and
procedures while recording income andprocedures while recording income and
expenditure;expenditure;
10.10. It is concerned with classification,It is concerned with classification,
accumulation, distribution and control ofaccumulation, distribution and control of
costs.costs.
9. Reasons for the emergence ofReasons for the emergence of
cost Accountingcost Accounting
1.1. Large scale of production;Large scale of production;
2.2. Cut throat competition;Cut throat competition;
3.3. Cost plus contract,1914-1919;Cost plus contract,1914-1919;
4.4. Cost reduction exercises during GreatCost reduction exercises during Great
Depression,1929;Depression,1929;
5.5. Need for controlling expenses and findingNeed for controlling expenses and finding
the cost of a job;the cost of a job;
6.6. Limitation of Financial accountingLimitation of Financial accounting
10. CostingCosting
It is the technique and process ofIt is the technique and process of
ascertaining costs (ICMA,London).ascertaining costs (ICMA,London).
According to Wheldon, it is the classifying,According to Wheldon, it is the classifying,
recording, and appropriate allocation ofrecording, and appropriate allocation of
expenditure for the determination of theexpenditure for the determination of the
costs of products or services; the relation ofcosts of products or services; the relation of
these costs to sales volumes andthese costs to sales volumes and
ascertainment of profitability.ascertainment of profitability.
11. Cost AccountancyCost Accountancy
It is the application of costing and costIt is the application of costing and cost
accounting principles ,methods andaccounting principles ,methods and
techniques to the science , art andtechniques to the science , art and
practice of cost control and ascertainmentpractice of cost control and ascertainment
of profitability as well as the presentationof profitability as well as the presentation
of information for the purpose ofof information for the purpose of
managerial decision makingmanagerial decision making (ICMA, London)(ICMA, London)
12. Scope of Cost AccountancyScope of Cost Accountancy
Cost AscertainmentCost Ascertainment
a) Systems: historical, actual, estimated,a) Systems: historical, actual, estimated,
standard costsstandard costs
b) Methods: Specific Order Costing,b) Methods: Specific Order Costing,
Operation CostingOperation Costing
c) Technique: Marginal Cost, Total costc) Technique: Marginal Cost, Total cost
Cost AccountingCost Accounting
Cost Control : Guiding, Regulates,Cost Control : Guiding, Regulates,
executive actionexecutive action
13. Limitation of Financial AccountingLimitation of Financial Accounting
1.1. Historical Data.Historical Data.
2.2. No clear idea of operating efficiency.No clear idea of operating efficiency.
3.3. Weakness not spotted out by collectiveWeakness not spotted out by collective
results.results.
4.4. Not helpful in price fixation.Not helpful in price fixation.
5.5. No classification of costs.No classification of costs.
6.6. No data for comparison and decision-No data for comparison and decision-
makingmaking
14. 7.7. No control on costs and costNo control on costs and cost
comparison is not easycomparison is not easy
8.8. No standard to assess the performance.No standard to assess the performance.
9.9. Improper classification of expenses.Improper classification of expenses.
10.10. No analysis of Losses.No analysis of Losses.
11.11. Inadequate information for reports.Inadequate information for reports.
12.12. There is no control over material andThere is no control over material and
supplies.supplies.
15. 13.Not amenable for introduction of13.Not amenable for introduction of
modern techniques.modern techniques.
14.No answer to certain questions.14.No answer to certain questions.
15.Quantitative information.15.Quantitative information.
16.Lack of unanimity about account16.Lack of unanimity about account
principle.principle.
17.Chances of manipulation.17.Chances of manipulation.
16. Objectives of Cost AccountingObjectives of Cost Accounting
To ascertain the cost per unit.To ascertain the cost per unit.
To provide a correct analysis of cost.To provide a correct analysis of cost.
To disclose sources of wastage of time,To disclose sources of wastage of time,
material , machine etc.material , machine etc.
To fix price.To fix price.
To ascertain the profitability.To ascertain the profitability.
To exercise effective control of stocks.To exercise effective control of stocks.
To advice management on future expansionTo advice management on future expansion
17. To present interpret for mgt. planning.To present interpret for mgt. planning.
To helps in preparation of budgetsTo helps in preparation of budgets
To provide information to right personTo provide information to right person
at right time.at right time.
To organise internal audit system.To organise internal audit system.
To formulate & implement incentiveTo formulate & implement incentive
bonus plans.bonus plans.
To organise cost reduction programmesTo organise cost reduction programmes
To find out costing & profit and loss .To find out costing & profit and loss .
18. Advantages of cost AccountingAdvantages of cost Accounting
1.1. Profitable and unprofitable activities areProfitable and unprofitable activities are
disclosed.disclosed.
2.2. It enables a concern to measure the efficiencyIt enables a concern to measure the efficiency
and then to maintain and improve it.and then to maintain and improve it.
3.3. It provides information upon which estimatesIt provides information upon which estimates
and tenders are based.and tenders are based.
4.4. It guides future production polices.It guides future production polices.
5.5. It helps in increasing profits.It helps in increasing profits.
6.6. It enables a periodical determination of profitsIt enables a periodical determination of profits
or losses.or losses.
19. It furnishes reliable data for comparing cost.It furnishes reliable data for comparing cost.
The exact cause of a decrease or increaseThe exact cause of a decrease or increase
in profit and loss.in profit and loss.
It discloses the relative efficiencies ofIt discloses the relative efficiencies of
different workers.different workers.
A good costing system can attract moreA good costing system can attract more
investors.investors.
Helpful to the Government.Helpful to the Government.
Efficiency of public Enterprises.Efficiency of public Enterprises.
Helpful to the Consumers.Helpful to the Consumers.
20. Costing –An Aid To Management.Costing –An Aid To Management.
Planning, Decision Making, ControllingPlanning, Decision Making, Controlling
Serves mgt. as followsServes mgt. as follows
Classification and sub division of costs.Classification and sub division of costs.
Control of material, labour and overheadControl of material, labour and overhead
cost.cost.
Business policies & Budgeting.Business policies & Budgeting.
Standards for measuring efficiency.Standards for measuring efficiency.
Best use of limited resources.Best use of limited resources.
Instrument for mgt. control.Instrument for mgt. control.
Cost audit.Cost audit.
Special factors.Special factors.
Price determination.Price determination.
21. Differences between Financial &Differences between Financial &
Cost AccountingCost Accounting
Point ofPoint of
DistinctionDistinction
Financial AccountingFinancial Accounting Cost AccountingCost Accounting
1.Purpose1.Purpose It provide information aboutIt provide information about
the in a general way.the in a general way.
It provides informationIt provides information
for proper planning,for proper planning,
operation control.operation control.
2.From of2.From of
Accounts orAccounts or
legallegal
requirementrequirement
These are kept to meetThese are kept to meet
requirement of Companiesrequirement of Companies
Act and Income Tax ActAct and Income Tax Act
It is prepared as perIt is prepared as per
managementmanagement
requirements .But nowrequirements .But now
Companies Act hasCompanies Act has
made obligatory.made obligatory.
3.Recording3.Recording It records in a subjectiveIt records in a subjective
manner (nature)manner (nature)
It records in a objectiveIt records in a objective
manner.manner.
22. 4.Control4.Control It lays emphasis onIt lays emphasis on
recording not onrecording not on
controlcontrol
It give importanceIt give importance
to controlto control
5.5.PeriodicityPeriodicity
ofof reportingreporting
It reports usually atIt reports usually at
the end of the year.the end of the year.
It reports whenIt reports when
mgt. desired.mgt. desired.
6.Analysis6.Analysis
of profitof profit
It disclose the netIt disclose the net
profit or loss as aprofit or loss as a
whole.whole.
It disclose profitIt disclose profit
or loss for eachor loss for each
job, product etc.job, product etc.
7.7.ReportingReporting
of costsof costs
The cost areThe cost are
reported inreported in
aggregate manner.aggregate manner.
The cost reportedThe cost reported
in broken downin broken down
basis.basis.
8.8.Nature ofNature of
transactiontransaction
It relates to commercialIt relates to commercial
transactiontransaction
It relates toIt relates to
manufacturingmanufacturing
transactiontransaction
23. 9.Information9.Information Monetary informationMonetary information
is used.is used.
Non MonetaryNon Monetary
iinformation is also used .nformation is also used .
10.Fixation of10.Fixation of
selling priceselling price
It is not maintained forIt is not maintained for
fixing selling price.fixing selling price.
It provide data forIt provide data for
fixing selling price.fixing selling price.
11.Figures11.Figures It deals with actualIt deals with actual
facts & figure .facts & figure .
It deals partly withIt deals partly with
actual facts & figureactual facts & figure
and partly withand partly with
estimates.estimates.
12.Stock12.Stock
valuationvaluation
Cost price orCost price or
market price whichmarket price which
ever is less.ever is less.
Stocks are valuedStocks are valued
at cost only.at cost only.
13.Types of13.Types of
ScienceScience
It is positiveIt is positive
science.science.
positive andpositive and
normative science.normative science.
24. 14.Reference14.Reference It can be used asIt can be used as
reference purpose.reference purpose.
No such referenceNo such reference
is possible.is possible.
15.Relative15.Relative
EfficiencyEfficiency
It does not provideIt does not provide It provide efficiencyIt provide efficiency
16.Approach16.Approach External partiesExternal parties Internal partiesInternal parties
17.Comparisi17.Comparisi
onon
Data are notData are not
sufficient forsufficient for
comparisoncomparison
Comparison of twoComparison of two
result periods isresult periods is
made in cost acct.made in cost acct.
18.Material18.Material
ControlControl
Can not possible.Can not possible. Can possible.Can possible.
19.Labour19.Labour
ControlControl
Can not possible.Can not possible. Can possible.Can possible.
2o.Cost2o.Cost
AnalysisAnalysis
Item wiseItem wise
classificationclassification
Department wiseDepartment wise
and element wiseand element wise
25. Limitations of Cost AccountingLimitations of Cost Accounting
Cost accounting lacks a uniformCost accounting lacks a uniform
procedureprocedure
There are a large number of conventions,There are a large number of conventions,
estimates and flexible factors.estimates and flexible factors.
Many formalities are to be observed forMany formalities are to be observed for
getting benefit of cost accounting.getting benefit of cost accounting.
It is not suitable for handling futuristicIt is not suitable for handling futuristic
situation Exp.inflationsituation Exp.inflation
26. Objections Against Cost accountingObjections Against Cost accounting
Want of necessity.Want of necessity.
InapplicabilityInapplicability
Failure in many cases.Failure in many cases.
Mere matter of forms and ruling.Mere matter of forms and ruling.
Expensive.Expensive.
27. Distinction between Cost andDistinction between Cost and
Management AccountingManagement Accounting
Point ofPoint of
distinctiondistinction
Cost AccountingCost Accounting Management AccountingManagement Accounting
1.Deals with1.Deals with It deals withIt deals with
ascertainment, allocation,ascertainment, allocation,
apportionment of costs.apportionment of costs.
It deals with the effect andIt deals with the effect and
impact of costs on theimpact of costs on the
business.business.
2. Base2. Base It is a base forIt is a base for
management accounting.management accounting.
It is derived from both costIt is derived from both cost
accounting andaccounting and
management accounting.management accounting.
3.Role3.Role Helpful for managementHelpful for management
acct.acct.
It is helpful for managementIt is helpful for management
accountantaccountant
4.Status4.Status The status of costThe status of cost
accounting is comes afteraccounting is comes after
managementmanagement
accountant .accountant .
Management accountant isManagement accountant is
senior to cost accountant.senior to cost accountant.
28. 5.Outlook5.Outlook Cost accountant hasCost accountant has
narrow approach.narrow approach.
Management accountantsManagement accountants
reports are effective.reports are effective.
6.Tools &6.Tools &
TechniquesTechniques
Standard costing,Standard costing,
variable costing, breakvariable costing, break
even analysis.even analysis.
Along with these, cash &Along with these, cash &
funds flow statement, ratiofunds flow statement, ratio
analysis etc.analysis etc.
7.Scope7.Scope It does not includingIt does not including
financial accounting, taxfinancial accounting, tax
planning.planning.
Along with these it alsoAlong with these it also
includes cost accounting.includes cost accounting.
8.Installation8.Installation It can installed with outIt can installed with out
management accounting.management accounting.
It needs financial and costIt needs financial and cost
accounting as its base foraccounting as its base for
installation.installation.
29. Classification of CostsClassification of Costs
1.1. By Nature or Elements:By Nature or Elements:
A) Materials ; B) Labour; C) Expenses.A) Materials ; B) Labour; C) Expenses.
2.2. By Functions :By Functions :
A) Production cost; B)Commercial cost.A) Production cost; B)Commercial cost.
3.3. By Normality:By Normality:
A) Normal cost; B) Abnormal cost.A) Normal cost; B) Abnormal cost.
4.4. By controllability:By controllability:
A) Controllable costs B) Uncontrollable costsA) Controllable costs B) Uncontrollable costs
30. 5. By Degree of traceability to the product:5. By Degree of traceability to the product:
A) Direct costs; B) Indirect costs.A) Direct costs; B) Indirect costs.
6.6. By changes in activity or volume:By changes in activity or volume:
A) Fixed costs; B) Variable costsA) Fixed costs; B) Variable costs
C) Semi variable costsC) Semi variable costs
1.1.Committed cost,Committed cost, 22.Policy and managed.Policy and managed
cost,cost, 3.3.Step cost,Step cost, 4.4.Discretionary costDiscretionary cost
examples of fixed cost.examples of fixed cost.
7. By Relation with Accounting Period :7. By Relation with Accounting Period :
A) Capital cost; B) Revenue cost.A) Capital cost; B) Revenue cost.
31. 8. By Time:8. By Time:
A) Historical cost; B) Predetermined cost.A) Historical cost; B) Predetermined cost.
9. According to pla9. According to plannning & Control:ning & Control:
A) Budgeted cost; B) Standard cost.A) Budgeted cost; B) Standard cost.
10.By Association with the Product:10.By Association with the Product:
A) Products costs; B) Period costs.A) Products costs; B) Period costs.
11. For Managerial Decisions:11. For Managerial Decisions:
A) Marginal cost; B) out of pocket costs;A) Marginal cost; B) out of pocket costs;
C) Differential cost D) Sunk cost;C) Differential cost D) Sunk cost;
E) Imputed cost or Notional cost;E) Imputed cost or Notional cost;
F) Opportunity cost ; G) Replacement costF) Opportunity cost ; G) Replacement cost
H) Avoidable & Un avoidable cost.H) Avoidable & Un avoidable cost.
32. Cost centreCost centre
It is the smallest segment of activity orIt is the smallest segment of activity or
area or responsibility for which costs arearea or responsibility for which costs are
accumulated.accumulated.
These cost centers are the departments orThese cost centers are the departments or
sub-departments of an organisation withsub-departments of an organisation with
reference to which cost is allocated forreference to which cost is allocated for
cost ascertainment and cost control.cost ascertainment and cost control.
33. Types of Cost CentresTypes of Cost Centres
Personal and Impersonal cost centres.Personal and Impersonal cost centres.
Product and Service cost centres.Product and Service cost centres.
Operation and Process cost centres.Operation and Process cost centres.
34. Some other costsSome other costs
Conversion cost.Conversion cost.
Carrying cost.Carrying cost.
Out of stock cost.Out of stock cost.
Ordering cost.Ordering cost.
Development cost.Development cost.
Policy cost.Policy cost.
Discretionary cost.Discretionary cost.
35. Idle facilities cost.Idle facilities cost.
Expired cost.Expired cost.
Incremental cost.Incremental cost.
Urgent cost.Urgent cost.
Postponable cost.Postponable cost.
Pre- production cost.Pre- production cost.
Research cost.Research cost.
Training cost.Training cost.
36. Cost UnitCost Unit
Cost unit is a device for the purpose ofCost unit is a device for the purpose of
breaking up or separating cost into smallerbreaking up or separating cost into smaller
sub-divisions attributable to products andsub-divisions attributable to products and
services.services.
Cost unit is the unit of product, service orCost unit is the unit of product, service or
time in relation to which costs may betime in relation to which costs may be
ascertained, example, tonne in case ofascertained, example, tonne in case of
coal.coal.
37. Cost unit not be too big or too small and must beCost unit not be too big or too small and must be
so selected that expenditure can be associatedso selected that expenditure can be associated
with it and is appropriate to the needs of thewith it and is appropriate to the needs of the
business.business.
Normally it the same unit by which wholesaleNormally it the same unit by which wholesale
transactions are entered into.transactions are entered into.
In case industries rendering service, usually theIn case industries rendering service, usually the
unit is a compound of two measures since theunit is a compound of two measures since the
single measure may be meaning less, example.single measure may be meaning less, example.
in case of goods transport the unit will be tonne-in case of goods transport the unit will be tonne-
km.km.
38. Types or Techniques of CostingTypes or Techniques of Costing
Uniform Costing.Uniform Costing.
Marginal Costing.Marginal Costing.
Standard Costing.Standard Costing.
Historical Costing.Historical Costing.
Direct Costing.Direct Costing.
Absorption Costing.Absorption Costing.
39. Methods of CostingMethods of Costing
According to CIMA there are two methodsAccording to CIMA there are two methods
of costing.of costing.
1. Specific Order Costing (Job/Terminal)1. Specific Order Costing (Job/Terminal)
Job costing.Job costing.
Contract costing.Contract costing.
Batch costing.Batch costing.
43. Statement of Cost or Cost SheetStatement of Cost or Cost Sheet
Cost sheet is a statement designed toCost sheet is a statement designed to
show the output of a particular accountingshow the output of a particular accounting
period along with break-up costs.period along with break-up costs.
It is a memorandum statement.It is a memorandum statement.
Therefore, it does not form part of doubleTherefore, it does not form part of double
entry cost accounting record.entry cost accounting record.
44. Advantages of Cost Sheet.Advantages of Cost Sheet.
It discloses the total cost and cost per unit.It discloses the total cost and cost per unit.
Close watch and control over theClose watch and control over the
production.production.
Comparative study of various costs.Comparative study of various costs.
Formulating a definite useful productionFormulating a definite useful production
policy.policy.
Fixing of selling price.Fixing of selling price.
It helps in submission of quotations.It helps in submission of quotations.
45. Specimen of Cost Sheet.Specimen of Cost Sheet.
ParticularsParticulars DetailsDetails
Rupees.Rupees.
AmountAmount
Rupees.Rupees.
Opening Stock of Raw Material.Opening Stock of Raw Material.
Add: Raw Material Purchase.Add: Raw Material Purchase.
Less:Closing Stock of Raw Material.Less:Closing Stock of Raw Material.
Raw material Consumed.Raw material Consumed.
Add :Direct Labour.Add :Direct Labour.
Add: Direct Expenses.Add: Direct Expenses.
Prime cost.Prime cost.
Add :Factory/Works OverheadsAdd :Factory/Works Overheads
Factory Cost IncurredFactory Cost Incurred
Add; Opening Stock of WIP.Add; Opening Stock of WIP.
Less: Closing Stock of WIP.Less: Closing Stock of WIP.
Work CostWork Cost
46. ParticularsParticulars DetailsDetails
Rupees.Rupees.
AmountAmount..
Rupees.Rupees.
Add: Administrative Overheads.Add: Administrative Overheads.
Cost of Production.Cost of Production.
Add: Opening stock of Finished Goods.Add: Opening stock of Finished Goods.
Less: Closing stock of Finished Goods.Less: Closing stock of Finished Goods.
Cost of Goods of Goods Sold.Cost of Goods of Goods Sold.
Add: Selling & Distribution OverheadsAdd: Selling & Distribution Overheads
..
Cost of Sale.Cost of Sale.
Add: Profit.Add: Profit.
SaleSale
