By Asst. Prof. Deepak Patil

Internal Marks Distribution100 Marks

Internals (40 Marks) External (60

Marks)3 Periodical Class Test

Best of 2 will be selected

Submission of Assignment and

Presentation

Attendance and Active Participation

Some Classroom Rules1. Students are free to join class at anytime during

the lecture but make sure you don’t disturb the class. Occupied nearest seat available immediately

2. Students are expected to carry below mentioned things

a. Class Problem Sheetb. Own Calculator (Mobile calculator is not allowed)c. Full size (A4 size) Note book.d. Ruler + Pencil

3. Internal Test will be conducted at 4th 8th and 12th

sessions. Short notice will be given on the same

Some Classroom Rules4. Students are expected to create a separate full

size note book (not more than 50 pages for writing Assignment) Assignment submitted on loose pages will not be accepted

5. Assignment should be submitted on next session in which assignment was given. (or no marks will be alloted)

6. Presentation Group should be have more than 5 members. (presentation guideline will be share soon)

7. All Class Representative should share their email id with me at deepak@gnims.com (students concern should be directed through CR.)

Session PlanSr. No.

Particulars No Sessions

1. Introduction to Cost and Management Accounting

1

2. Preparation of Cost Sheet 23. Job Costing 14. Process Costing 15. Service Costing 16. Marginal Costing / CVP Analysis 27. Budgeting 28. Managerial Decision Problem 19. Responsibility Accounting (Case Study) 110. Presentation 211. Management Games 1

Total 15

Topics and Hints for Presentation Topic1. The Goal Book Review Novel by Eliyahu M.

Goldratt and Jeff Cox 2. Valuation of Bulk production (like Switch, Fan

etc )3. Estimating price of Furniture, Printing Visiting

card etc.4. Fixing price of Hotel Room5. How to reduce cost of City Bus (like BEST,

NMMT, KDMC. TTC)6. Fixing price Bakery product7. Estimating price of product that goes from more

than 1 process.

Topics and Hints for Presentation Topic8. Target Costing

Class 1

Learning ObjectivesCost Methods & Cost Techniques

Costing Systems/Methods

Cost Classification

Cost Sheet

Cost Methods & Cost TechniquesCost Methods1. Job Costing2. Contract3. Batch4.Process( continuous)5. Service( Operating)

Cost Techniques1. CVP Analysis2. Budgetary Control

Costing Systems/Methods

Historical AbsorptionDirectMarginalStandardUniform

COST CLASSIFICATION Elements Behaviour Functions Normality Control Decision Making

ElementsMATERIAL

LABOUR

EXPENSES

MATERIAL

Direct: traceable to one particular process, job or product – identified with each unit of product

Example: manufacturing an apparel Cloth, collar, buttons, cufflinks, thread Primary packing material (e.g., carton, wrapping,

cardboard, boxes, etc.)

Fuel, lubricating oil etc for operating & maintenance of machine

Small toolsMaterials used for repairs & maintenance

LABOUR

InspectorsSupervisorsInternal transport staffStorekeeper, maintenance staff

EXPENSES

Expenses leading to a job or contractTraveling expenses for negotiationSpecial pattern, designSpecial tools for executing the contract

RentInsuranceCanteen, hospital, power , lighting,

maintenance

BehaviourFixed in short run & long run

VariableVaries with volume and constant per unit

Semi-variableA cost could be variable for one level of activity whereas it couldbe fixed for another.

Not inherently fixed or variableMany costs are semi-variable in nature

Fixed Cost

Committed Fixed Costs consists largely of those fixed costs that arise from the possession of plant, equipment and a basic organizational structure. For example, once a building is constructed and plant is installed, nothing much can be done to reduce the costs such as depreciation, property taxes, insurance and salaries of the key personnel, etc., without impairing the organization's competence to meet the long-term goals.

Discretionary Fixed Costs : set at fixed amount, for specific time periods by the management, in the budgeting process. These costs directly reflect top management policies and have no particular relationship with volume of output. These costs can therefore be reduced or eliminated entirely, if the circumstances so require. Examples of such costs are: research and development costs, advertising and sales promotion costs, donations, management consulting fees, etc. these costs are also termed as managed or programmed costs.

FunctionsProduction CostAdministration CostSelling CostDistribution Cost

NormalityNormalAbnormal

ControlControllable &Uncontrollable

Planning & ControlBudgeted Cost: estimate of expenditure for

different business operations

Standard Cost: for prescribed set of operating conditions, labour, material and overheads are predetermined; budget translated into actual operation through standard costs

Decision MakingMarginal vs. Absorption Costing

(with fixed cost and without FC)Sunk - irrelevantCommitted – pre committedOpportunity Incremental / DifferentialAvoidable & Unavoidablecontrollable / uncontrollable

RelevanceRelevantIrrelevant

Cont…..

Irrelevant cost: not relevant for decision making

Example: Sunk costs: Sunk cost is the cost of abandoned plant less salvage value. Not relevant for decision making.

Imputed (Notional cost): Actually not incurred (interest on own capital, rent on owned building, etc.) Taken into account in capital budgeting decisions.

Replacement cost: Cost of replacing at current market price.

Cont…..

Avoidable and unavoidable cost: Cost that can be avoided by eliminating a product or department is avoidable and that which cannot be, is unavoidable.

Ex. – Rent of factory is unavoidable if a product is discontinued.

Other costs:

Future costs: cost to be incurred in futureProgrammed cost: Cost incurred as per policy of

top management. Ex.- Donation to charity.Joint cost: cost of joint or by-products incurred

before separation, which cannot be traced to particular products.

Conversion cost: cost of converting raw material to finished goods = Production cost- direct material.

Discretionary cost: not essential for decision on hand. Ex.- Training expenses of workers, R&D cost.

Committed cost: Costs incurred due to past decisions and are not within control in the short run at present. Ex.- Depreciation on Plant, Rent, etc.

INVENTORIABLE COSTS AND PERIOD COSTS

Inventoriable cost/ product cost is that cost which is regarded as asset when incurred, but becomes a part of cost of goods sold when the product is sold. For MUL, all manufacturing cost is inventoriable cost. (Raw material to WIP to Finished goods) For a service sector unit, absence of inventory means all are period costs.

Period costs (non-product cost): all costs in P&L account except cost of goods sold. So, in a mfg. sector unit, all non-manufacturing costs are period costs. (Ex. Distribution cost, design cost, R&D costs, Marketing costs, customer-service costs, etc.)

Cost Accounting vs Management Accounting Cost Accounting Management Accounting

Concerned with ascertainment, allocation & distribution of cost

Concerned with impact and effect aspect of cost

Cost accounting data serves as a base for management accounting

Management accounting data derived from cost accounting

Primary emphasis of cost accounting is to deal with collection, analysis and presentation problems to management

Main focus on formulating corporate planning, policies and strategies

It does not include financial and tax accounting

It includes both financial and tax accounting

Cost Accounting vs Management Accounting Cost Accounting Management Accounting

Cost accounting system can be installed without management accounting

Management accounting system can not installed without cost accounting

It is concerned with money as a measure of economic performance

It looks at non monetary economic events from management view

More concerned with short term planning

Concerned with short as well as long range planning. Evaluating project is specialty of management accounting

Cost Accounting vs Financial Accounting Cost Accounting Financial Accounting

Internal reporting system to own management for decision making

Reporting other than management like government, creditors, investors etc

More concerned with short term planning and reporting period is lesser than financial accounting

Period of reporting is much wider

Deals with historic data with futuristic approach

Data is historical in nature

Cost accounting system can not install without proper financial accounting system

Financial accounting system can be installed without proper cost system

Cost Accounting vs Financial Accounting

Cost Accounting Financial Accounting

Uses both monetary and non monetary information

Uses only monetary information

Provides detailed system of cost control with help of standards and budgets

Emphasize only on recording of transaction and presentation of data in form of financial statements

Each organization can develop its own costing system

Established concepts, principles and accounting standards

Cost Sheet

Production process of Gear Manufacturing

Cost Sheet for the period ………………(production/unit)