Managerial Accounts

Meaning of cost Accounting

ccounting is the classifying, and appropriate allocation of e for the determination of the roducts or services, and for the on of suitably arranged data for of control and guidance of ent. It includes the ascertainment st of every order, job, contract, unit as may be appropriate. It the cost of production, selling ution.

COST Cost Accounting is a special wing of Management accounting. It involves calculation of the cost of products and helps management in fixing a fair selling price.

METHODS OF COSTING: 1.Job Order Costing 2.Contract OR Terminal costing 3.Batch costing 4.Process costing 5.Operation costing 6.Single out or Unit costing 7.Operating or Service costing. 8.Multiple or composite costing.

Classification (process) of costs  Direct

cost  Indirect cost  Fixed cost  Variable cost  Semi variable cost

ELEMENTS OF COST Direct Cost Direct Material Direct labor Direct Expenses

 INDIRECT

COSTS

Indirect Material Indirect Labor Indirect Expenses

Dm Direct Material : CIMA -”the cost of commodities supplied to an undertaking –D OR ID Eg. Clay in bricks, leather in shoes, steel in machines, cloth in garments, timber in furniture – part of the finished product. Indirect materials: These are those materials which cannot be conveniently identified with individual cost units (Minor). Eg. Lubricating oil, sand paper, nuts and bolts, coal, small tools, office stationery.

Labour cost-

the cost of remuneration (wages, salaries, commissions, bonuses etc, of the employees of an undertaking-CIMA

Direct Labor: DL Cost consist of wages paid to workers directly engaged in converting raw materials into finished products. Easily identified with a particular product job, process. Eg. Machine operator, shoe-maker, carpenter, weaver, tailor.

Indirect Labour: It is of general character and cannot be conveniently identified with a particular cost unit. Indirect labour is not directly engaged in the production operations but only to assist or help in production operations. Eg. Supervisor. Inspector, cleaner, clerk peon, watchman.

Expenses-All costs other than M & L are termed as expenses .  Direct Expenses: -CIMA- Direct expenses are those expenses which can be identified with and allocated to cost centers or units. DE are also known as chargeable expenses.

Eg. hire of special plant for particular job. Cost of patent rights, experimental costs, royalty paid in mining etc.

INDIRECT EXPENSES. All indirect costs, other than indirect materials and indirect labor costs, are termed as indirect expenses. These cannot be conveniently identified with a particular job, process, or work order and a common to cost units or cost centers. Eg. Rent and rates, depreciation, lighting and power, advertising. Insurance, repairs.

By grouping the cost elements-the divisions of cost are obtained. 1.Prime cost=DM+DL+DE 2.Works or Factory cost=PC+W/FOH 3.Cost of production=Works cost+ Admin.OH 4.Total cost or cost of sales=cost of production+ selling & distribution OH. The difference between the cost of sales and selling price represents profit and loss.

Ascertain the prime cost, works cost, cost of production, total cost and profit from the

.

following

DM-5000; DL-3500;FE1500;Admn.exp.800; selling exp.700 & sales 15000. PC=DM+DL= 5000+3500=8500 Work Co.=Pro.C+F.EXP= 8500+1500=10000 Co. of Pro.= wc+admn.exp=10000+800=10800 Total cost or cost of sales=Cost of production+Selling

BEA 1.Break Even Analysis 2.BEA POINT 3.BEA CHART 4.MARGIN SAFETY (M.S)

BEA due

to many reasons, such as competition, introduction of new product, trade depression or boom, increased demand for the product, scare resources, change in the selling prices of products etc.

BEA Meaning: The term BEA is termed in the Narrower as well as Broader Sense. In the narrower sense – it is Concerned with finding out the BEP i.e., Total Cost equals Total Selling Price. In the Broader sense - it is concerned with the system of analysis determines the probable profit at any level of production.

BEA  The

Break Even Analysis establishes the relationship of Cost volume out put and profit, so this analysis is also known as “COST VOLUME PROFIT ANALYSIS”.

BREAK EVEN POINT: Break

Even Point is the base of Break Even Analysis. This is that point where there is no profit no loss. It can be defined as follows: “Break Even Point is that activity (Sales) where Total Revenues and Total Expenses are equal; it is the point of Zero Profit ands Zero Loss.

BEP Computation

of Break Even Point: There are 2 approaches can be uses to compute the break even point:

1. The Formula Approach 2. The Chart Approach.

BEP- Break Even Formula: The Break-Even-Point (BEP) can be computed in terms of units, or in terms of money value (Rupee, dollars, or Pounds) of sales volume or as a percentage of estimated capacity. Total Fixed Expenses 1) BEP (in Units) = ------------------------------------------------Selling price per unit – Marginal cost per unit.

BEP (in sales) =

Fixed cost x Selling prices XS Selling price – V. Cost -V OR

2)

BEP (in Sales) = Fixed Costs P/V Ratio

F S

F P/V

BEP as a % of full capacity = Break Even sales Volume Full or normal capacity sales volume BEP (in Rs. ) = Fixed Cost = F 1- V.C0st/profit 1V/P

a) Profit/volume Ratio (analysis) OR P/V ratio OR C/S ratio :

Ratio can be calculated as follows: P/V ratio = Contribution i.e., C Sales S = Fixed Expenses + profit F +P Sales

P/V Ratio = Change in profits or Contribution changes in Sales This ratio can also be shown in the form of a % if the formula is multiplied by 100.

Application of P/V ratio The P/V ratio is useful for the Determination of BEP and level of output or Sales to earn a desired amount of profit. This ratio can also be used for the calculation of variable costs and profit for any volume of sales.

P/V Ratio BEP =

Fixed Cost P/V RATIO

F P/V Ratio

Value of sales to earn a desired amount of Profit: = Fixed cost + profit F+P P/V Ratio P/V ratio Variable cost = Sales (1-P/V R atio)

BEA CHART Break Even Chart is a pictorial representation of the cost volume profit relationship. “It is a graph showing the amounts of fixed and variable costs and the sales revenue at different volumes of operations”.

MARGIN OF SAFETY M.S. is the range of sales over and above the ‘Break Even Sales’. M.S. is the difference between the actual sales and the sales at BEP. M.S. = Present Sales – B.E. Sales M.S. = Profit P/V ratio

Thank



you…………….

dip kumar dey