Presentation

On
Costing
 OVERVIEW
Accounting is a part of the information system of a
business enterprise. It provides financial information
concerning the activities of an enterprise to a diverse
group of people such as shareholders, managers,
creditors, tax authorities etc.
On the basis of the purpose for which this information
is used, accounting is divided into three parts.
1. Financial Accounting
2. Management Accounting
3. Cost Accounting
Financial Accounting

It is defined as “ the art of recording,

classifying and summarizing in a
significant manner and in terms of
money, transactions and events, which
are in part at least, of a financial
character and interpreting the results
thereof”.
Management Accounting

The Charted Institute of Management

Accountants (CIMA) London has defined
management accounting as “ the
presentation of accounting information in
such a way as to assist management in
the creation of policy and in the day-to-
day operation of undertaking”.
Cost Accounting
According to L.C. Cropper “ cost accounting means a
specialized application of the general principles of
accounting in order to ascertain the cost of producing and
marketing any unit of manufacturer or of carrying out any
particular job or contract”.
According to CIMA London “ cost accounting is the
process of accounting for costs from the point at which
expenditure is incurred or committed to the establishment
of its ultimate relationship with cost centres and cost units.
Limitations of Financial Accounting
•Shows only overall performance.
•Historical in nature.
•No material control system.
•No labour cost control.
•No proper classification of costs.
•No analysis of losses.
•Inadequate information for price fixation.
•No cost comparison.
•Fails to supply useful data to management.
COST
According to CIMA London defined cost is “the
amount of expenditure incurred to a given thing”.

Costing
According to CIMA London has defined costing as
“ the techniques and process of ascertaining the
costs”.
Applications of Cost Accounting
Objectives of Cost Accounting

• Ascertainment of costs
• Cost control and cost reduction
• Guide to business Policy
• Determination of selling price
COST CENTRE
According to CIMA London as “ a location, person, or item
of equipment (or group of these) for which costs may be
ascertained and used for the purpose of control”.
Cost centres are primarily of 2 types
• Personal Cost centre
• Impersonal cost centre
From a functional point of view
• Production cost centre
• Service cost centre
Cost Unit
According to CIMA London defined cost unit as a “ unit
of product or service in relation to which costs are
ascertained”.
In short, cost unit is unit of measurement of
cost.
Types of cost units
• Units of production
• Unit of service
Cost Object

Cost object may be defined as “

anything for which a separate
measurement of cost may be desired”.
A cost accountant may want to
know the cost of a particular ‘thing’ and
such a ‘thing’ is called a cost obect.
Methods of costing
• Job order costing
• Contract costing or terminal costing
• Batch costing
• Process costing
• Single output or Unit costing
• Operating or Service costing
• Multiple or Composite costing