Module1Cost slides

Module One : 

1 Module One Basic Concepts & Terms of Costing

(A) Meaning of costing : 

2 (A) Meaning of costing Collection, analysis, interpretation & presentation of relevant cost data for managerial decision making & control Set of Procedures which translates raw data into useful information for managerial decision making & knowing costs & Profitability of products/services

Slide 3: 

3 (B) Significance of costing Profitability analysis Analysis of cost behaviour Actual Vs Expected results Pricing policies/Pricing Strategies Effect of ↑↓ in output on profitability Continue or shut down of activities Actions for optimum use of resources Management Performance Effect of Productivity rise, Plant modernization & new management techniques On Costs & Profits A.B.C. for unprofitable & non value added activities Effect of Strategies on cost of products/services

(C) Cost Management : 

4 (C) Cost Management Approach of managers for planning & control to increase value to customer Broad focused Planning & control of costs linked to profit planning Integral part of strategic decision making Features - Calculate cost of products/services/cost objects - M.I.S. for planning, control & performance evaluation - Information analysis for decision making

(D) COST, COST OBJECT, COST UNIT : 

5 (D) COST, COST OBJECT, COST UNIT COST: Resources sacrificed to achieve given objective Measured in monetary terms Historical or budgeted COST OBJECT: Activity or operation in which resources are consumed Useful for decision making Cost is related to Cost object. COST UNIT: Unit of product, service or their combination Costs are ascertained w.r.t. cost unit Depends on: Nature of business/MIS/Costing System EXS: Automobile (No), Chemicals (Kg, lit,), Textiles (meters)

(E) DECISION CENTERS : 

6 (E) DECISION CENTERS (a) Cost Center Only cost incurred Cost collection centre Departments/Processes/activities/equipments/persons Decisions: Cost- Control / reduction / management Efficiency of manager by cost saving Useful for better managerial control Types: Impersonal/Personal/Production/Service Accountability: increase in costs

Slide 7: 

7 (b) Revenue Center Revenue generated Sales division Decisions-prices/discounts/sales mix/pricing Policies/Pricing strategies Accountability – decrease in revenue

Slide 8: 

8 (c) Profit Center Profit generated Divisions of company Profitability analysis – profit centre wise Targets in terms of profit Decisions: Price Structure/Sales volume/ Cost Control Reporting to: B.O.D. Key role in profit management Accountability: decrease in profits

Slide 9: 

9 (d) Investment Center Investments to be made Decisions: Investment in assets/managing assets Expansion/diversification Reporting: B.O.D. (Higher level than Profit centre) Accountability: decrease in R.O.I.

(F) Cost Components : 

10 (F) Cost Components TOTAL COST PRIME COST + OVERHEADS Direct + Direct + Direct Indirect + Indirect + Indirect Mat. Lab. Exp. Mat. Lab. Exp. R.M. Wages Royalty Production Overheads B.O. Benefits Spl.eqip. Administration Overheads P.P.M. Welfare Expense Sales & Distribn. Overheads

Slide 11: 

11 Prime Cost +Prodn. OHs.+ Op.WIP - Clo.WIP =Factory or Works Cost (A) ( A ) + Adm. OHs = Cost of prodn. of goods mfd. (B) ( B ) + OP.F.G.-Clo. F.G.=C.O.P.Of goods sold (C) ( C ) + S&D overheads =Cost of Sales (D) ( D ) + Profit=Sales (net of taxes)

Slide 12: 

12 (G) Cost Classification BASE TYPES OF COST Element Material, Labour, Expenses Function Production, Administration, S & D Behaviour Variable, Fixed, Semi-Variable Costs Control Controllable& Uncontrollable Costs Normality Normal Costs, Abnormal Costs

Slide 13: 

13 (H) Costs Useful to Managers ( Costs for decision making ) Opportunity Cost Imputed Costs Sunk Costs Relevant Costs

(I) Cost Sheet : 

14 (I) Cost Sheet Op. STOCK (Raw material) + Purchases (Incl. freight I/W) Clo. Stock (Raw material) = Materials Consumed (a) Direct Labour (b) Direct Expenses (c) Prime Cost (a+b+c) + Factory overheads (net of scrap) + Op. Stock (WIP) Clo. Stock (WIP) Factory or Works Cost + Administration overheads Production cost of Goods Produced + Op. stock of finished goods + Clo.stock of finished goods Cost of Prodn. of goods Sold +Selling & Distribn. Overheads Cost of Sales + Profit Sales (Net of taxes)

(J) Costing Vs. Financial Accounting : 

15 (J) Costing Vs. Financial Accounting COSTING F.A. Gives profits of products, Gives overall profits of Co. Processes etc. M.I.S. as per mgt. usage As per statutory requirement Reporting as & when Half yearly or yearly as required by management required by Co’s Act Audit not necessary for Necessary for every company every company Records & reports not Given to shareholders given to Shareholders