COST AND MANAGERIAL

ACCOUNTING
 DEFINITION
• It is a system of accounting, which provides
the information about the ascertainment, and
control of costs of products, or services
 IMPORTANCE OF COST ACOUNTING
• Helps in ascertainment of cost
• Aids in Price fixation
• Helps in Cost reduction
• Elimination of wastage
• Helps in identifying unprofitable activities
• Helps in checking the accuracy of financial
account
• Helps in fixing selling Prices
• Helps in Inventory Control
• Helps in estimate
 Limitations of cost accounting
• It is expensive The results shown by cost
accountant differ from those shown by
financial accountant. It is unnecessary
because it involves duplication of work.
 ELEMENTS OF COST
• Direct Material Cost
• Direct Labor Cost
• Other Production Cost
– Direct Cost
– Indirect Cost
 CLASSIFICATION OF COST
Product Cost : is a cost that is incurred in
producing goods and services. This cost becomes
part of inventory.
Example : Direct material, direct labor and factory
overhead.
Period Cost :The cost is not related to
production and is matched against on a time period
basis. This cost is considered to be expired during
the accounting period and is charged to the profit &
loss account.
Example Selling and administrative expenses
• Variable costs :Costs that vary with the
volume of activity
• Fixed costs:Costs that do not vary with the
volume of activity
• Semi Variable Cost/mixed Cost: Contains both
Fixed and Variable Cost
 PRACTICE QUESTION
• Cost Item
– Fixed (F) Variable (V)
– Period (P) Product (R)
• Transportation-in costs on materials purchased
• Assembly line workers wages
• Property taxes on office buildings for administrative staff
• Salaries of top executives in the company
• Overtime pay for assembly workers
• Sales commissions
• Sales personnel office rent
• Sales supervisory salaries
• Controller’s office rental
• Administrative office heat and air conditioning
 PRACTICE QUESTION
• Cost Item
– Fixed (F) Variable (V)
– Period (P) Product (R)
• Transportation-in costs on materials purchased........ V R
• Assembly line workers wages........................ V R
• Property taxes on office buildings for administrative staff.. F P
• Salaries of top executives in the company.............. F P
• Overtime pay for assembly workers................ V R
• Sales commissions ..................................... V P
• Sales personnel office rent....................... F P
• Sales supervisory salaries ....................... F P
• Controller’s office rental ...................................... F P
• Administrative office heat and air conditioning........... F P
 DISTINGUISH FIXED &
VARIABLE COST
• Four Methods:
– Historical
– High and Low Method
– Scatter Diagram (Method Of Least Squares)
– Linear Regression
• Linear Regression
Equation : Y=a+bX
Question
• Based on the following data of number of units produced and
the corresponding total cost, estimate the total cost of
producing 4,000 units.
Prepare COGM ,COGS AND N.I