Cost and Management Accounting, Notes BBA V, Unit-1
Unit I
Introduction: Nature and Scope of Cost
Accounting, Cost, concepts and
Classification, Methods and Techniques, Installation of Costing System
Cost Accounting.
Cost accounting is
the provision of such analysis and classification of expenditure as will enable
to ascertain the total cost of any particular unit
of production.
Cost Accounting is defined as the process of accounting for cost. This process begins with the recording of income and expenditure or the bases on which they are calculated and ends with the preparation of periodical statements and reports for the purpose of ascending and controlling cost.
Costing
Meaning: Costing is the technique and process of determining cost.
a) To serve as a guide to the price-fixing of products.
b) To disclose sources to wastage in various operations of manufacture.
c) To reveal sources of economy in the production process.
d) To provide for an effective system of stores and material.
e) To measure the degree of efficiency of the various departments or
units of production.
f) To provide suitable means and information to the top management to
control and guide the operations of the business organization.
g) To exercise effective control on the costs, time, and efforts of
labor, machines, and other factors of production.
h) To compare actual costs with the standard costs and analyze the
causes of variation.
i) To provide necessary information to develop cost standards and to
introduce the system of budgetary control.
j) It enables the management to know where to economize on costs, how
to fix prices, how to maximize profit, and so on.
CHARACTERISTICS OF A GOOD COSTING SYSTEM
An ideal system of cost accounting must possess some characteristics which bring all the advantages, to the business, in order to be ideal and objective.
The main characteristics are:
1-Simplicity: It must be simple, flexible, and adaptable to the changing conditions. And it must be easily understandable to the personnel. The information provided must be in the proper order, at the right time, and to the right persons so as to be utilized fully.
2-Flexibility and Adaptability: The costing system must be flexible to accommodate the changing conditions and circumstances. The expansion, contraction of changes must be adopted in the existing system with minimum changes.
3-Economy: The costing system must suit the finance available. The expenditure must be less than the benefits derived from the system adopted.
4-Comparability: The management must be able to make a comparison of the facts and figures with the past figures, figures of other concerns, or other departments of the same concern.
5-Minimum Changes to the Existing one: When introducing a costing system,
6-Less Clerical Work: Printed forms will involve less labor to fill in, as the workers may be a little educated. They may not like to spend much time in filling the forms.
7-Efficient Material Control and Wage System: There must be a proper procedure for recording the time spent on different jobs, by workers for the payment of wages. A systematic method of wage system will help in the control of labor costs. Since the cost of material forms a great proportion to the total cost, there must be an efficient system of store control.
8-A Sound Plan: There
must be proper and sound plans to collect, allocate, and to
apportion overhead expenses on each job or each product
in order to _nd out the cost accurately.
9-Reconciliation: The systems of costing and financial accounting must be facilitated to reconcile in the easiest manner.
Scope of Cost Accounting:
In order that cost accounting satisfies
the requirements of both internal and external reporting, the following are the
different activities which are undertaken under cost accounting system:
1-Cost Determination: This
is the first step in the cost accounting system. It refers to determining the
cost for a specific product or activity.
2-Cost Recording: Its
is concerned with the recording of costs in the cost journal and they're subsequent
posting to the ledger.
3-Cost Analyzing: It
is concerned with critical evaluation of cost information to assist the
management in planning and controlling the business activates.
4-Cost Reporting: It
is concerned with reporting cost data both for internal and external reporting
purpose.
FUNCTIONS OF COST ACCOUNTING
According to Blocker and Weltemer,
“Cost Accounting is to serve management in the execution of policies and in
comparison of actual and estimated results in order that the value of each
policy may be appraised and changed to meet the future conditions”. The main
functions of cost accounting are:
i) To serve as a guide to price-fixing
of products.
ii) To disclose sources of wastage in the process of production.
iii) To reveal sources of economy in the production process.
iv) To provide for an effective system
of stores, materials, etc.
v) To exercise effective control of
factors of production.
vi) To ascertain the profitability of
each product.
vii) To suggest the management of future
expansion policies.
viii) To present and interpret data for
management decisions.
ix) To organize cost reduction
programs.
x) To facilitate planning and control
of business activity.
xi) To supply timely information for
various decisions.
xii) To organize the internal audit
systems etc.
ADVANTAGES OF COST ACCOUNTING
1- Helps in Decision Making: Cost accounting helps in decision making. It provides
vital information necessary for decision making. For instance, cost accounting
helps in deciding:
1. Whether to make a product buy a product?
2. Whether to accept or reject an export order?
3. How to utilize the scarce materials profitably?
2-Helps in fixing prices: Cost accounting helps in fixing prices. It provides
detailed cost data of each product (both on the aggregate and unit basis) which
enables fixation of the selling price. Cost accounting provides basic information
for the preparation of tenders, estimates, and quotations.
3-Formulation of future plans: Cost accounting is not a post-mortem examination. It is a
system of foresight. On the basis of past experience, it helps in the
formulation of definite future plans in quantitative terms. Budgets are
prepared and they give direction to the enterprise.
4-Avoidance of wastage: Cost accounting reveals the sources of losses or
inefficiencies such as spoilage, leakage, pilferage, inadequate utilization of
plants, etc. By appropriate control measures, these wastages can be avoided or
minimized.
5-Highlights causes: The exact cause of an increase or decrease in profit or
loss can be found with the aid of cost accounting. For instance, it is possible
for the management to know whether the profits have decreased due to an
increase in labor cost or material cost or both.
6-Reward to efficiency: Cost accounting introduces bonus plans and incentive wage
systems to suit the needs of the organization. These plans and systems reward
efficient workers and improve productivity as well as improve the morale of the
workforce.
7-Prevention of frauds: Cost accounting envisages sound systems of inventory
control, budgetary control, and standard costing. Scope for manipulation and
fraud is minimized.
8-Improvement in profitability: Cost accounting reveals unprofitable products and
activities. Management can drop those products and eliminate unprofitable
activities. The resources released from unprofitable products can be used to
improve the profitability of the business.
9-Preparation of final accounts: Cost accounting provides for a perpetual inventory system.
It helps in the preparation of interim profit and loss account and balance
sheet without physical stock verification.
10-Facilitates control: Cost accounting includes effective tools such as
inventory control, budgetary control, and variance analysis. By adopting them,
the management can notice the deviation from the plans. Remedial action can be
taken quickly.
LIMITATIONS OF COST ACCOUNTING
In spite of the various advantages claimed by cost accounting, the
discipline suffers from the following limitations:
1-Cost Accounting is costly to operate: It involves heavy
expenditure to operate. The benefits derived by operating the system are more
then the cost.
2-Cost Accounting involves many forms and statements: It involves the usage
of many forms and statements which leads to an increase of paperwork.
3-Costing may not be applicable in all types of Industries: Existing methods
of cost accounting may not be applicable in all types of industries. Cost
accounting methods can be devised for all types of industries, and services.
4-It is based on Estimations: Costing system relies on predetermined data and therefore
it is not reliable. The costing system estimates cost scientifically based on past
and present situations and with suitable modifications for the future. This
leads to accurate cost figures based on which management can initiate
decisions. But for the predetermined costs, cost accounting also becomes
another ‘Historical Accounting’.
5-It is not an exact science: Like any other accounting system, it is not an
exact science but an art that has developed through theories and practices.
Bias Judgments: Many judgments are biased and depend on individual discretion.
The difference in opinion: Different views are held by different cost accounts
about the items to be included in the cost.
CHARACTERISTICS OF A GOOD COSTING SYSTEM
An ideal system of cost accounting must possess some characteristics which
bring all the advantages, discussed above; to the business, in order to be
ideal and objective. The main characteristics are:
1-Simplicity: It must be simple, flexible, and adaptable to the changing conditions. And
it must be easily understandable to the personnel. The information provided
must be in the proper order, in the right time, and to the right persons so as to be
utilized fully.
2-Flexibility and Adaptability: The costing system must be flexible to accommodate the
changing conditions and circumstances. The expansion, contraction of changes
must be adopted in the existing system with minimum changes.
3-Economy: The costing system must suit the finance available. The expenditure must be
less than the benefits derived from the system adopted.
4-Comparability: The management must be able to make comparison of the
facts and figures with the past figures, figures of other concerns, or other
departments of the same concern.
5-Minimum Changes to the Existing one: When introducing a
costing system, it may cause minimum change to the existing set up of the
business.
6-Uniformity of Forms: Forms of different colors can be used to distinguish
them. Forms must be uniform in size and quality. The form should contain
instructions to fill, to use, and disposal.
7-Less Clerical Work: Printed forms will involve less labor to fill in, as the
workers may be a little educated. They may not like to spend much time in
filling the forms.
8-Efficient Material Control and Wage System: There must be a
proper procedure for recording the time spent on different jobs, by workers for
the payment of wages. A systematic method of wage system will help in the
control of labor cost. Since the cost of material forms a great proportion to
the total cost, there must be an efficient system of store control.
9-A Sound Plan: There must be proper and sound plans to collect, allocate, and to apportion overhead expenses on each job or each product in
order to find out the cost accurately.
10-Reconciliation: The systems of costing and financial accounting must be
facilitated to reconcile in the easiest manner.
11-Overall Efficiency of Cost Accountant: The work of the
cost accountant under a good system of costing must be clearly defined as to
his duties and responsibilities to the firm are very essential
Cost
Cost means the amount of expenditure incurred upon manufacturing of an article or providing any service.
Classification of Cost:
Classification of costs implies the process of grouping
costs according to their common characteristics. Proper classification of
costs is absolutely necessary to mention the costs with cost centers. Usually,
costs are classified according to their nature, viz., material, labor,
overhead, among others.
An identical cost figure may be classified in various
ways according to the needs of the firms.
The classification of cost as
given:
This
is the analytical classification of costs. Let us divide as per their natures.
So basically there are three broad categories as per this classification,
namely Labor Cost, Materials Cost, and Expenses. These heads make it easier to
classify the costs in a cost sheet. They help ascertain the total cost and
determine the cost of the work-in-progress.
1.
Material Costs: Material costs are the costs of any materials we use in
the production of goods. We divide these costs further. For example, let’s
divide material costs into raw material costs, spare parts, costs of packaging
material etc.
2.
Labor Costs: Labor costs consists of the salary and wages paid to
permanent and temporary employees in the pursuit of the manufacturing of the
goods
3.
Expenses: All other expenses associated with making and selling the
goods or services.
2]
Classification by Functions
This is the functional
classification of costs. So the classification follows the pattern of basic
managerial activities of the organization.
The grouping of costs is according
to the broad divisions of functions such as production, administration, selling
etc.
·
Production Costs: All costs concerned with actual manufacturing or
construction of the goods
·
Commercial Costs: Total costs of the operation of an enterprise other than
the manufacturing costs. It includes the admin costs, selling and distribution
costs etc.
3].
According to Variability:
According to this
classification, costs are classified according to their behaviour in relation
to changes in the level of activity or volume of production.
On
this basis, costs are classified into three groups viz. fixed, variable and
semi-variable:
(i) Fixed or period costs
are commonly described as those which remain fixed in total amount with
increase or decrease in the volume of output or productive activity for a given
period of time. Fixed cost per unit decreases as production increases and
increases as production declines. Examples of fixed costs are rent, insurance
of factory building, factory manager’s salary etc.
These fixed costs are
constant in total amount but fluctuate per unit as production changes. These
costs are known as period costs because these are dependent on time rather than
on output. Such costs remain constant per unit of time such as factory rent of
Rs. 10,000 per month remains the same for every month irrespective of the output of
every month.
(ii) Variable or
product costs are those which vary in total in direct proportion to the
volume of output. These costs per unit remain relatively constant with changes
in production. Thus, variable costs fluctuate in total amount but tend to
remain constant per unit as production activity changes. Examples are direct
material costs, direct labor costs, power, repairs, etc. Such costs are known
as product costs because they depend on the quantum of output rather than on
time.
(iii) Semi-variable
costs are those which are partly fixed and partly variable. For example,
telephone expenses included a fixed portion of annual charge plus variable
charge according to calls; thus total telephone expenses are semi-variable.
Other examples of such costs are depreciation, repairs, and maintenance of
buildings and plants, etc.
4] Classification by Normality
This classification determines the
costs as normal costs and abnormal costs. The norms of normal costs are the
costs that usually occur at a given level of output, under the same set of
conditions in which this level of output happens.
·
Normal Costs: This is a part of the cost of production and a part of the
costing profit and loss. These are the costs that the firm incurs at the normal
level of output in standard conditions.
·
Abnormal Costs: These costs are not normally incurred at a given level of
output in conditions in which normal levels of output occur. These costs are
charged to the profit and loss account, they are not a part of the cost of
production.
5] Classification by Traceability
This aspect one
of the most important classification of costs, into direct costs and indirect
costs. This classification is based on the degree of traceability to the final
product of the firm.
·
Direct Costs: So these are the costs which are easily identified with a
specific cost unit or cost centers. Some of the most basic examples are the
materials used in the manufacturing of a product or the labor involved with the
production process.
·
Indirect Costs: These costs are incurred for many purposes, i.e. between
many cost centers or units. So we cannot easily identify them to one particular
cost center. Take for example the rent of the building or the salary of the
manager. We will not be able to accurately determine how to ascertain such
costs to a particular cost unit.
6]. According to Controllability:
Under this, costs are
classified according to whether or not they are influenced by the actions of a
given member of the undertaking.
On
this basis it is classified into two categories:
(i)
Controllable Costs:
Controllable costs are
those which can be influenced by the action of a specified member of an
undertaking, that is to say, costs which are at least partly within the control
of management.
An organization is
divided into a number of responsibility centers and controllable costs incurred
in a particular cost center can be influenced by the action of the manager
responsible for the center. Generally speaking, all direct costs including
direct material, direct labor, and some of the overhead expenses are
controllable by a lower level of management.
(ii)
Uncontrollable Costs:
Uncontrollable costs are
those which cannot be influenced by the action of a specified member of an
undertaking that it is to say, which are within the control of management. Most
of the fixed costs are uncontrollable. For example, the rent of the building is not
controllable and so are managerial salaries. Overhead cost, which is incurred
by one service section and is apportioned to another which receives the
service, is also not controllable by the latter.
7] According to Time:
Cost
can be classified as:
(i)
Historical Costs:
The cost which is
ascertained after their incurrence is called historical costs. Such costs are
available only when the production of a particular thing has already been done.
Such costs are only of historical value and not at all helpful for cost control
purposes.
Basic
characteristics of such costs are as follow:
(a) They are based on
recorded facts.
(b) They can be verified
because they are always supported by the evidence of their occurrence.
(c) They are mostly
objective because they relate to happenings that have already taken place.
(ii)
Predetermined Costs:
Such costs are estimated
costs i.e. computed in advance of production taking into consideration the
previous period’s costs and the factors affecting such costs. Predetermined
cost determined on a scientific basis becomes a standard cost. Such costs when
compared with actual costs will give the reasons for variance and will help the
management to fix the responsibility and to take remedial action to avoid its
recurrence in the future.
8]. According to Planning
and Control:
Planning and control are
two important functions of management. Cost accounting furnishes information to
the management which is helpful is the due discharge of these two functions.
According to this, costs can be classified as budgeted costs and standard
costs.
Various budgets are
prepared for various phases, such as raw material cost budget, labor cost
budget, cost of the production budget, manufacturing overhead budget, office and
administration overhead budget etc., Continuous comparison of actual
performance (i.e. actual cost) with that of the budgeted cost is made so as to
report the variations from the budgeted cost to the management for corrective
action.
“Standard cost is the predetermined cost based on a technical estimate for materials, labor and overhead for a selected period of time and for a prescribed set of working conditions”. Thus, the standard cost is a determination, in advance of production of what should be the cost.
8] According to Managerial Decisions:
On
this basis, costs may be classified into the following costs:
(i) Marginal
Cost:
Marginal cost is the
total of variable costs i.e. prime cost plus variable overheads. It is based on
the distinction between fixed and variable costs. Fixed costs are ignored and
only variable costs are taken into consideration for determining the cost of
products and value of work in progress and finished goods.
(ii) Out
of Pocket Costs:
This is that portion of
the cost which involves payment to outsiders i.e. gives rise to cash
expenditure as opposed to such costs as depreciation, which do not involve any
cash expenditure. Such costs are relevant for price fixation during the recession
or when to make or to buy a decision is to be made.
(iii) Differential
Costs:
The change in costs due
to change in the level of activity or pattern or method of production is known
as differential costs. It the change increases the cost; it will be called
incremental cost. If there is a decrease in cost resulting from a decrease of
output, the difference is known as decremental cost.
(iv) Sunk
Costs:
A sunk cost is an
irrecoverable cost and is caused by the complete abandonment of a plant. It is the
written down the value of the abandoned plant less its salvage value. Such costs
are not relevant for decision making and are not affected by an increase or the decrease in volume.
(v) Imputed
Costs:
These costs are those
costs which appear in cost accounts only e.g. national rent charged on business
premises owned by the proprietor, interest on capital for which no interest has
been paid. These costs are also known as notional costs. When alternative
capital investment projects are being evaluated it is necessary to consider the
imputed interest on capital before a decision is arrived as to which is the
most profitable projects.
(vi) Opportunity
Cost:
It is the maximum
possible alternative earning that might have been earned if the productive
capacity or services had been put to some alternative use. In simple words, it
is the advantage, in measurable terms, which has been foregone due to not using
the facility in the manner originally planned. For example, if an owned the building is proposed to be used for a project, the likely rent of the building
is the opportunity cost which should be taken into consideration while
evaluating the profitability of the project.
(vii) Replacement
Cost:
It is the cost at which
there could be purchased an asset or material identical to that which is being
replaced or revalued. It is the cost of replacement at the current market price.
(viii) Avoidable
and Unavoidable Cost:
Avoidable costs are
those which can be eliminated if a particular product or department, with which
they are directly related, is discontinued. For example, the salary of the clerks
employed in a particular department can be eliminated if the department is
discontinued. Unavoidable cost is that cost which will not be eliminated with
the discontinuation of a product or department. For example, the salary of a factory
manager or factory rent cannot be eliminated even if a product is eliminated.
Cost Center
Meaning - For the installation of a cost accounting
system, the organization is divided into sub-units. Cost center is the smallest
organizational sub-unit for which separate cost collection is attempted.
It is defined as a location, a person or an item of
equipment (or group of these) for which cost may be ascertained and used for
the purpose of cost control.
Types - Primarily there are two types of cost centers, namely
1-Personal cost
center - consisting of a person or a group of persons
2-.Impersonal cost
center - consisting of a location or an item of equipment (or a group of
these). Functionally, there are two types of cost centers, namely:
1.Production
cost center - It is a cost center where both direct and
indirect expenses are incurred for the production. The following are the examples of production cost centers- machine shop, milling and turning shop, assembly shop.
2.Service Cost Centre - A cost center that renders services to production cost centers is termed as a service cost center. It serves as an ancillary unit to the production cost center. Powerhouse, boiler plant, repair shop, material service center, all are examples of service cost centers. Considerations - The formation of appropriate cost centers is very important for the purpose of cost control. Important considerations for the formation of cost centers are as follows:
a. Organization of the factory.
b-Conditions prevalent for the incurrence of cost.
c-Management’s decision needs
INSTALLATION OF A COSTING SYSTEM
The costing system of an organization should be carefully
planned in order to achieve its objectives.
The important
steps for the installation of a costing system are discussed below:
Determination of objectives: The first step is to clearly lay down the objectives of the costing system. If the objective is only to ascertain the cost, a simple system will be sufficient. However, if the objective is to get information for decision making, planning, and control, a more elaborate system of costing is necessary.
Study of the nature of business: The nature of the business and other technical aspects like nature of the products, methods, and stages of the production cycle
should be carefully analyzed.
Such an analysis is necessary to decide the method of
costing to be adopted. For example, contract costing is suitable for large
construction projects. Operating costing is adopted by service industries like
transport.
Study of the nature of the organization: The costing system should be designed to meet the requirements of the organization. Hence, it is necessary to study the nature,
size, and layout of the organization.
The factors to be considered are:
a. Size of the organization and the size of the
departments.
b. The physical layout of the organization.
c. The different levels of management.
d. The extent of decentralization of authority.
e. The nature of authority relationships.
Deciding the structure of cost accounts:
A suitable costing system can be developed on the basis of
the study of the nature of business and organization. The structure of cost accounts should be simple and in accordance with the natural
production process.
a. Classification of costs into direct and indirect
costs.
b. Grouping of indirect costs (overheads) into
production, administration, selling and distribution, etc.
c. Methods of pricing issues.
d. Treatment of wastes of all types.
e. Absorption of overheads.
f. Calculation of overhead rates.
Organization of the cost office:
The cost office is responsible for the efficient
operation ofthe costing system. The cost office, with adequate staff must be located a close as possible to
thefactory. The following are the major functions of the cots office.
a. Stores accounts.
b. Labour accounting
c. Recording of cost data and
d. Cost control.
Further, the role and duties and responsibilities of the
cost accountant must be clearly defined. He must have the necessary authority
to discharge his duties effectively.
Introducing the system:
After completion of the above steps, the costing system
may be formally introduced. The introduction of the system in an existing
organization should be done gradually. Before the introduction, the feature of the
systems, its working and advantages must be explained to the concerned employees
to secure their co-operation.
Costing Methods and Techniques :
Introduction :- It is necessary to understand the difference between the costing methods and techniques. Costing methods are those which help a fi rm to compute the cost of production or services offered by it. On the other hand, costing techniques are those which help a fi rm to present the data in a particular manner so as to facilitate the decision making as well as cost control and cost reduction. Costing methods and techniques are explained below.
Methods of Costing :- The following are the methods of costing.
I. Job Costing :- This costing method is used in firms which work on the basis of job work. There are some manufacturing units which undertake job work and are called as job order units. The main feature of these organizations is that they produce according to the requirements and specifications of the consumers.
II. Batch Costing :- This method of costing is used in those firms where production is made on continuous basis. Each unit coming out is uniform in all respects and production is made prior to the demand, i.e. in anticipation of demand. One batch of production consists of the units produced from the time .
III. Process Costing :- Some of the products like sugar, chemicals etc involve continuous production process and hence process costing method is used to work out the cost of production. In process costing, cost per process is worked out and per unit cost is worked out by dividing the total cost by the number of units. Industries like sugar, edible oil, chemicals are examples of continuous production process and use process costing.
IV.Operating Costing :- This type of costing method is used in service sector to work out the cost of services offered to the consumers. For example, operating costing method is used in hospitals, power generating units, transportation sector etc. A cost sheet is prepared to compute the total cost and it is divided by cost units for working out the per unit cost.
V. Contract Costing :- This method of costing is used in construction industry to work out the cost of contract undertaken. For example, cost of constructing a bridge, commercial complex, residential complex, highways etc is worked out by use of this method of costing.
Technique of Costing:-
Costing methods are for computation of the total cost of production/services offered by a firm. On the other hand, costing technique help to present the data in a particular format so that decision making becomes easy. Costing techniques also help for controlling and reducing the costs.
The following are the techniques of costing
1-Marginal Costing :- This technique is based on the assumption that the total cost of production can be divided into fi xed and variable. Fixed costs remain same irrespective of the changes in the volume of production while the variable costs vary with the level of production, i.e. they will increase if the production increases and decrease if the production decreases.
II. Standard Costing :- Standard costs are predetermined costs relating to material, labor and overheads. Though they are predetermined, they are worked out on scientific basis by conducting technical analysis. They are computed for all elements of costs such as material, labor and overheads. The main objective of fixation of standard cost is to have benchmark against which the actual performance can be compared.
III. Budgets and Budgetary Control :- Budget is defined as, ‘a quantitative and/or a monetary statement prepared to prior to a defined period of time for the policies during that period for the purpose of achieving a given objective.’ If we analyze this definition, it will be clear that a budget is a statement, which may be either in monetary form or quantitative form or both. For example, a production budget can be prepared in quantitative form showing the target production, it can also be prepared in monetary terms showing the expected cost of production.
IV. Historical Costing: ‘The ascertainment of costs after they have been incurred’ is called Historical costing. Such costs are, therefore, ‘postmortem’ costs as under this method all the expenses incurred on the production are first incurred and them the costs are ascertained
V. Direct Costing: The practice of charging all direct cost to operations, process or products, leaving all the indirect costs to be written off against profits in the period in which they arise is called direct costing.
VI. Absorption Costing: It is the practice of charging all costs, both variables and fixed, to operations, processes or products. This is the traditional technique as opposed to Marginal or Direct costing techniques. Here both the fixed and variables cost are charged in the same manner.
DISTINGUISH BETWEEN FINANCIAL AND COST ACCOUNTING
1. Nature Financial accounts are maintained on the basis of
historical records.
Cost accounts lay emphasis on both historical and
predetermined costs.
2. Use Financial Accounting is used even by outside entities.
Cost Accounting is used as the only management of the
concern.
3. System Financial Accounting uses the double-entry system for
recording financial data.
Cost Accounting does not use the double-entry for
collecting cost data.
4. Scope Financial Accounting covers all items of
income and expenditure whether related to the cost centers or not,
Cost Accounting covers all items related to a cost center.
5. Reports Financial Accounting results are shown P&L
A/c and balance sheet.
Cost
Accounting results are shown in cost Sheet/ Coating Profit& Loss A/c/ Reports
Contract A/c/ Process A/c.
6. Period Financial Accounting is for a specific
period.
Cost Accounting concentrates on cost centers and not on
period.
7. Stock
Valuation In financial accounts, stocks are valued at cost or realizable
value, whichever is lesser.
In cost accounts, stocks are valued at cost.
8. Analysis
of Profit and
Cost
In financial accounts, the Profit or Loss of the entire
enterprise is disclosed into.
Cost accounts reveal Profit of Loss of different products, departments separately.
Reports
Generated by the Cost Accounting Department:
1-Cost
sheet
2- Material Consumption
Statement
3-labor Utilization statement
4-labor Turnover
5-Overheads Statement
6-Sales Statement
7-Inventory Analysis Sheet
8-Statement of Abnormal wastages /
losses /spoilages
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