What is job costing? What are its main characteristics? Characteristics Features procedure involve in job order costing. Applicability What is BEP? List out the assumption of breakeven analysis Assumption of BEP analysis What is Profit Volume (P/V) Ratio What is CVP analysis? How does it help the management? What is process costing? What are its main characteristics? Name the industries where process costing can be applied. Normal Loss Abnormal Loss Abnormal Gain Job Costing & Process Costing Accounting for losses in process costing What do you mean by operating costing? Draw a specimen cost sheet for transport costing. INDUSTRY AND CORRESPONDING COST UNIT RECONCILIATION STATEMENT

1. Cost Accounting
BY: Sadrani yash

2. Presentation Answers
• What is job costing? What are its
main characteristics?
Characteristics
Features
procedure involve in job order costing.
Applicability
• What is BEP? List out the assumption of
breakeven analysis
• Assumption of BEP analysis
• What is Profit Volume (P/V) Ratio
• What is CVP analysis? How does it help the
management?
• What is process costing? What are its
main characteristics? Name the
industries where process costing can be
applied.
Normal Loss
Abnormal Loss
Abnormal Gain
Job Costing & Process Costing
• Accounting for losses in process
costing
• What do you mean by operating
costing? Draw a specimen cost sheet
for transport costing.
• INDUSTRY AND CORRESPONDING
COST UNIT
• RECONCILIATION STATEMENT

3. What is job costing? What are its main
characteristics?
• Job costing is a costing method applied to determine the
cost of specific jobs or lots of production generally
manufactured according to “customer’s specification”
• A job may be product, unit, batch, sales order, project,
contract, services etc..

4. • Job costing is also known as job order costing.
• It is that form of specific order costing which applies where
the work is undertaken as per the customer’s specific
requirements and each order is of comparatively short
duration

5. Characteristics
• Work is performed in accordance with the customer’s orders and specifications.
• Products are not produced for maintaining stock.
• Every job can be identified clearly.
• Every job is charged with its own cost.
• Costs are collected to each job at the end of its completion.
• Work-in-progress may or may not exit at the end of the accounting period.

6. • Each job is a separate accounting unit, and separate job or production numbers
are allotted to each job.
• The purpose of job order costing is to segregate the cost of each product or lot or
job.
• Standardization of controls is comparatively difficult as each job differs and
more detailed supervision and control is necessary.
• It is concerned with the cost of an individual job or batch regardless of the time
taken to produce it, but normally short duration jobs.

7. What do you mean by job order costing? Enumerated
the objectives and essentials of job costing.
• Job order costing used for production of large, unique, high cost items.
• Built to order rather than mass production.

8. Features
• Work is performed in accordance with the customer’s orders and specifications.
• Products are not produced for maintaining stock.
• Every job can be identified clearly.
• Every job is charged with its own cost.
• Costs are collected to each job at the end of its completion.
• Work-in-progress may or may not exit at the end of the accounting period.

9. Features
• Each job is a separate accounting unit, and separate job or production numbers
are allotted to each job.
• The purpose of job order costing is to segregate the cost of each product or lot or
job.
• Standardization of controls is comparatively difficult as each job differs and more
detailed supervision and control is necessary.
• It is concerned with the cost of an individual job or batch regardless of the time
taken to produce it, but normally short duration jobs.

10. Explain procedure involve in job order
costing.
1. Pre production procedure.
2. Allotment of job number.
3. Issue of production order.
4. Maintenance of separate job cost card.
5. Collection of costs
(i) Accounting for materials.
(ii) Accounting for direct labour.
(iii) Accounting for direct expenses.
(iv) Accounting for overheads.
6. Job cost analysis

11. • What do you mean by job costing? Under what circumstances, the job costing
suitable? Can the caterer use the job costing? If no, which method he should
use?

12. Applicability
• Job costing is applicable to concerns engaged in job-order production or
services.
• It is employed by jobbing concerns.
This method of costing is used in organizations, where
• Production is done on the basis of customer’s own specifications,
• Products are manufactured in distinguishable lots,
• Products are not uniform, and
• It is practical to maintain a separate record of each lot from the time the
production has begun until it is completed.

13. What is BEP? List out the assumption
of breakeven analysis
• Breakeven analysis is also known as cost-volume profit analysis
• Breakeven analysis is the study of the relationship between selling prices, sales
volumes, fixed costs, variable costs and profits at various levels of activity

14. Assumption of BEP analysis
• Relevant range
The relevant range is the range of an activity over which the fixed cost
will remain fixed in total and the variable cost per unit will remain
constant
• Fixed cost
Total fixed cost are assumed to be constant in total
• Variable cost
Total variable cost will increase with increasing number of units
produced
• Sales revenue
 The total revenue will increase with the increasing number of units produced

15. What is Profit Volume (P/V) Ratio
• This ratio indicates the contribution earned with respect to
one rupee of sales.
• It is also known as Contribution Volume or Contribution
sales ratio.
• Fixed costs remain unchanged in the short run, so if there
is any change in profits, that is only due to change in
contribution.

16. P/V Ratio = Contribution x 100
Sales
P/V Ratio = Changes in profit x 100
Changes in Sales

17. What is CVP analysis? How does it help
the management?

18. Cost Volume Profit analysis
• CVP analysis studies the relationship between expenses, revenues and net
income.
• The aim is to establish what will happen to financial results if a specified level of
activity or volume fluctuates.

19. What is process costing? What are its main
characteristics? Name the industries where process
costing can be applied.

20. Process costing
• Process costing is a method of costing used to find out the cost of the product in
each process.
• It is used to calculate cost per unit of product is ascertained at each stage of
production.
• It is a form of operations costing.
• Process costing is used in industries like chemicals, textiles, steel, rubber,
sugar, shoes, petrol, etc.

21. meaning
• Process costing is that form of operations
costing which is used where standardized
goods are produced in large volume with
continuous production follow.
• This method is applicable where goods or
services result from a sequence of continuous
processes.

22. Applicability
• This method of costing is used by those concerns which
manufacture articles of uniform standards.
• These firms manufacture articles on a continuous flow
basis.
• Under the following conditions, process costing can be
followed favourably:
 Production of a single product.
 Processing of a single product for a certain period.
 Production of several products of a standard design in the same plant.
 Division of a factory into separate operations or processes.

23. Characteristics
• Cost flow from one process to another
• Equivalent production computation
• Average unit cost computation
• Normal and abnormal losses
• Work in progress at year end
• Emergence of more than one product
• Transfer to finished goods
• Homogenous product
• Separate ledger

24. Normal Loss
• It is a part of the process loss which is caused under normal circumstances, and
an inevitable loss.
• It can not be avoided by any steps or measures by the management.
• It is also referred to as a non-controllable loss.
• Normal loss may have a scrap value.
• The cost of normal loss after deducting scrap value, if any, is to be borne by the
output of the respective process.

25. Abnormal Loss
• It is a part of the process loss which is caused due to abnormal circumstances.
• Abnormal loss is avoidable and controllable by the management by
establishing proper precautionary measures.
• Abnormal loss occurs in addition to normal loss.

26. Abnormal Gain
• Abnormal gain arises when the actual wastage (loss) is less than the normal
wastage or when the actual output is more than the normal output.
• Abnormal gain arises due to rise in the efficiency of the production department,
so the benefit of abnormal gain will not be transferred to customers.

27. Job Costing & Process Costing
Job Costing Process Costing
Production is against some
specific orders
Process is in continuous flow
and Homogenous
Each Job is separate and
independent of each other
Products lose their individual
entity, as they are
manufactured on a continuous
flow
Costs are calculated when a
job is completed
Costs are calculated at the end
of a cost period
It involves more paperwork It involves less paperwork

28. Accounting for losses in process
costing
• In a production process, losses are inherent
and unavoidable
• Nature of losses
Normal loss
Abnormal loss

29. What do you mean by operating costing?
Draw a specimen cost sheet for transport
costing.
• Companies belonging to the service sectors
like transport companies, hospitals,
electricity and gas companies, hotels and
restaurants, water supply and road
maintenance companies are some of the
enterprises where operating costing is
applicable.

30. Characteristics
• It is a system of costing employed to find the cost of rendering a
service.
• Under this system, costs are accumulated under suitable headings
and are expressed in terms of the unit of services rendered.
• Unlike in other methods of costing, selection of cost unit is difficult in
operating costing.
• Operating costs are mostly period costs.
• This system requires a more detailed but simpler statistical data for
proper costing

31. Features
• Classification of costs into variable and fixed
• ascertainment of costs is done periodically
• Stages & process involved in conversion of basic
material
• No difficulty in valuation of work in Progress
• Intangible products
• Cost unit differs
• Accurate estimation of cost is difficult

32. INDUSTRY AND
CORRESPONDING COST UNIT
Types of services Cost unit
Transport Passenger kms, Tonnes kms
Hospital Patient-bed, patient-day
Canteens Meals served
Hotels Room day
Cinema Man show
Power generation Per kilowatt hour
Boiler houses Kilograms of steam supplied

33. Define contract costing. What are the
special features of contract accounting?

34. Introduction
• Contract costing is a type of job costing in which a
contract constitutes a unit of cost.
• Contract costing, which is otherwise called
terminal costing, is adopted by those business
undertakings which undertake definite contracts.
• CIMA - Contract cost as ‘the aggregated costs
relative to a single contract designated as a cost
unit.’

35. Features of Contract Costing
• Each contract is considered as a separate unit of cost.
• A separate ledger account is kept for each contract and is
allotted a unique number.
• Usually the contract work is carried out at the customer’s site.
• A contract usually takes more than one accounting year to
complete.
• Normally the entire labour cost is directly chargeable to the
contract.
• Plant and equipment may be purchased or hired for the contract
work.
• Penalties may be incurred by the contractor for failing to
complete the work within the specified period.

36. Accounting Procedure
• Materials:
Issue from storeroom
Purchases from market
Transfer from other contract
Material supplied by contractee
• Direct Labour
• Direct Expenses
• Indirect Expenses or Overheads
• Plant and Machinery
• Subcontract cost
• Extra Work Done
• Escalation Clause

37. Types of contracts
•Fixed –price contract with escalation
clause
•Cost-plus contract

38. Fixed Price contract with
escalation clause
• Contracts of some nature extend over a long period,
covering more than a few accounting periods.
• During such lengthy period, there may be changes in
the prices of materials, labour and so on.
• At the time of acceptance of a contract, such factors
have to be foreseen and estimated properly.
• If such factors are not taken into account, then the
contractor may not be able to attain the profit
targeted.
• In order to safeguard against this, a special clause
known as “escalation clause’ is incorporated in fixed
price contracts.

39. Escalation clause
• The clause is provided in the contract to cover up
any changes in the price of materials, labour, etc.
Since the contracts generally take more than one
year to complete, the object of incorporating this
clause is to safeguard the interest of both the
parties against unfavourable changes in prices.

40. De-escalation cluase
• A de-escalation clause may be inserted in the
agreement to take care of the interest of the
contractee. It provides for downward revision of
the contract price in case the cost goes down
beyond a certain agreed level or the quantity of
materials and labour-time reduce from an
estimated level.

41. Cost Plus Contract• It is a modified method of contract costing.
• This method of costing is used when it is not possible to
determine the cost of the contract in advance with a
reasonable degree of accuracy.
• Under this type of contract, the contractee agrees to pay the
contractor the contract price plus an agreed percentage
above the contract price or a fixed fee. Cost-plus contracts
are generally used in Governments only.
• Contract Price
It is the value of the contract which is agreed to be paid to
the contractor by the contractee when the contract is
satisfactory completed.

42. Cost Plus Contract
• The cost plus contract is useful in the following situations:
When it is difficult to estimate the cost of a contract due to
the cost fluctuations or the long period of time required to
execute the contract, or
When the probable cost of contract cannot be estimated in
advance with a reasonable degree of accuracy, or
When the contract is absolutely new to the contractor.

43. Work-in-progress (WIP)
• Incomplete contracts are referred to as work-in-
progress. It includes the cost of certified work, cost
of uncertified work, the value of plant at site, and
the cost of materials at site.

44. Work Certified
• Both the contractor and the contractee are
interested in getting the work certified due to the
following:
It helps to monitor the progress of work done.
It is a basis of payment to be made by the contractee.
It facilitates the estimation of profit.
It helps to get loans against work certified.
• Work certified always has a cumulative value. It is a
part of the work done, generally in percent. It is always
valued at the contract price.
•

45. Work Uncertified
• Work uncertified is the value of work done,
but not certified by the architect.

46. Retention money
• To put the contractee in a favourable position to take
care of any faulty work that may arise or to recover
penalty that may recoverable on account of late
completion. This also ensures the contractee that the
contractor will continue to work and not leave the
contract incomplete.

47. What do you understand by reconciliation of cost and
financial accounts? Indicate the possible reasons for
difference between them.

48. DEFINITION
• Cost Accounting A method of accounting, which provides for
assembling and recording of all elements of cost incurred to accomplish a purpose,
to carry on an activity or operation, or to complete a unit of work or a specific job.
• Financial Accounting Financial accountancy (or financial
accounting) is the field of accountancy concerned with the preparation of financial
statements for decision makers, such as stockholders, suppliers, banks, employees,
government agencies, owners, and other stakeholders.

49. RECONCILIATION IS PROCESS
• Whereby Profits Revealed by Two Sets of
Books-financial Accounts and Cost Accounts
are Tallied after Ascertaining the Reasons
for Disagreement of Two Profits.

50. NEED FOR RECONCILIATION
• When cost and financial accounts are maintained separately, the profit shown by
one set of books may not agree with that of the other set.
• In such a situation, it becomes necessary to reconcile the results (profit / loss)
shown by two sets of books Cause for difference between profit shown by cost and
financial accounts is that there are certain items which appear in financial books
only and are not recorded in cost accounting books
• Similarly, there may be some items which appear in cost accounts only and do not
find a place in the financial books Need for Reconciliation:

51. Reasons Of Difference
• Notional Rent of Own Building
• Notional Interest on Capital Employed
• Notional Salaries
• Notional Depreciation
1. Items Shown in
Cost Accounts Only

52. Reasons Of Difference
• Abnormal Wastage of Materials
• Loss By Fire or theft ( not insured)
• Cost of Abnormal idle time
• Exceptional Bad Debts
1. Items of Expenses
and losses Shown
in Cost Accounts Only
Abnormal Losses

53. Reasons Of Difference
• Interest rec. on Loans, deposits,
investments
• Dividend Received
• Dividend Receivable
• Profit on Sale of Assets
• Transfer Fees
• Brokerage, Commission, Discount
Received
2. Items(INCOME) Shown
Only in Financial Accounts

54. Reasons Of Difference
• Interest on Loan and Debentures
• Discount on Issue of Shares & Debentures
• Cash Discount
• Fines & Penalties
• Loss On Sale of Fixed Assets
• Donations, Subscriptions etc
3.Items of Expenses
and losses Shown
in Fin. Accounts Only
Financial Expenses

55. Reasons Of Difference
• Dividend & Bonus to Share holders
• Transfer to Gen. Reserve, Sinking Fund
• Taxes on Income & Profits
• Excess Provision against Depreciation
3.Items of Expenses
and losses Shown
in Fin. Accounts Only
Appropriation of
Profits

56. Reasons Of Difference
4. Under or Over absorption
of Overheads

57. Reasons Of Difference
5.Valuation of Stocks

58. Reasons Of Difference
6.Different Methods Of Depreciation

59. ITEMS INCLUDED IN FINANCIAL
ACCOUNTS ONLY
• Appropriation of profits
 Provision of taxation
 Goodwill
 Preliminary expenses written off
 Dividend & Bonus to Share holders
 Transfer to Gen. Reserve, Sinking Fund
 Taxes on Income & Profits
 Excess Provision against Depreciation

60. • Purely financial charges
 Losses on sale of investment
 Interest on Loan and Debentures
 Discount on Issue of Shares & Debentures
 Cash Discount
 Fines & Penalties
 Loss On Sale of Fixed Assets
 Donations, Subscriptions etc
 Expenses on transfer of company’s office.
• Purely financial incomes
 Interest received on bank deposits /loans
 Profits made on sale of investment/assest
 Fixed assets transfer fee received.
 Dividend Received
 Dividend Receivable
 Brokerage, Commission, Discount Received

61. ITEMS INCLUDED IN COST
ACCOUNTS ONLY...
• Cost of abnormal idle time
• Under/over absorption of expenses in cost accounts
• Abnormal wastage of materials
• Notional rent
• Depreciation on an asset even when the book value of an asset is reduced to a
negligible figure.

62. Reconciliation procedure
• Ascertainment of profit as per Cost Accounts
• Ascertainment of Profit as per Financial Accounts
• Reconciliation of both the profits

63. RECONCILIATION STATEMENT
• The preparation of reconciliation statement involves the following
steps:
1. Profits as per any set of books(cost or financial) may be taken as a
base.
2. The effect of the particular cause of difference should be studied
on the profits shown by the other set of books.
3. In case, the cause has resulted in an increase in the profit shown
by other set of books, the amount of such increase should be
added to the profit as per the former set of books which has been
taken as a base. preparation of reconciliation statement

64. 4. In case, the cause has resulted in a decrease in the profit shown
by other set of books, the amount of such decrease should be
subtracted from the profit as per the former set of books which has
been taken as a base .
In the reconciliation it does not matter in which form the stock is kept
,i.e, raw material, work-in-progress or finished stocks. The basic
principle is that if the opening stock is higher, profit is lower whereas
if the closing stock is higher, profit is higher, and vice versa. for
example:
If opening raw material is lower in cost accounts, the costing profit
will be higher .
If closing work in progress is higher on cost accounts, costing profits
will be higher.