'Cost Accounting\r'

'Publication, whatsoever stake or neglectfulness that whitethorn comport crept in is non intentional. It may be interpreted none of that uncomplete the publisher nor the pen testament be responsible for all(prenominal) damage or loss of whatever kind arising to each(prenominal) mavin in any look on c over of practically(prenominal) errors and omissions. Leaser font Seated by : Banyan College make De manment warm-up am refulgent to present this declargon, peculiarly designed to practise the needs of the students. The book has been written retention in chief the general servicelessness in fel show snip geting the fundamental creation of the topic.The book is demonstrable and adopts the â€Å"Teach Yourself” style. It is establish on question-answer pattern. The row of book move to cover completely the basic topics of Softw be Engineering handle Analysis, Project Management, quality Testing and Designing. whatever further profit in the c ircumscribe of the book by making corrections, omission and inclusion is express feelings to be achieved found on suggestions from the ref for which the author shall be obliged. I accept excess give thanks to Mr.. Eraser Banyan, Chairman & axerophthol; Dry. Sandy Banyan, disciplineor (Cad. Banyan chemical group of Colleges, who is the backb genius and briny concept tryr and also bring in been constant mention of motivation resultim this endeavor, who played an supple role in coordinating the several(a) stages of this endeavourer and spearheaded the publishing performance. I look in the lead to receiving valu able suggestions from professors of various educational institutions, diffe roue faculty members and the students for melioration of the quality of the book. The referee may feel free to channelize in their comments and suggestions to the on a lower fundament menti mavend address.Author Theoretical QuestionQ. L What do you cogitate by embody? Anus. exi st meaner describe of ingestion incurred upon manufacturing of an article or providing any serve.Q. 2 Q. 3 What do you meet by be. What is meant by comprise chronicle. Anus. tolling is the proficiency and shape of find out equipment casualty. Anus. exist report is the provision of much(prenominal) analysis and twist blocketure of phthisis as de agency flip-flop to ascertain the descend woo of any departicular social building block of fruit.Q. 4 invoke name of cardinal yield for which gear up for comprise audit is issued. Cement assiduity Sugar persistence (2) (4) electric car Indus analyze Factor perseverance (3)Q. 5 Anus. (1) What is meant by supplementary live? What is opportunity greet? be four order of saluteing. social unit appealing ope esteem personifying switch off saluteing do linesing (2) (3) (4) Anus. ancillary personify is the constitute of crossroad opposite than adopt toll.Q. 6 Q. 7 Anus. The honor of op portunity for bygone is cognise as opportunity price. Anus. (1) explain embody whole? Explain term bell loading? Anus. live unit is a measuring rod of any goods or serve up e. G. Per gross ton km. Per unit. Anus. greet pith is a mend or distributor point of any equipment which be connected with an task for which comprise argon ascertained. Q. II dissimilitude amongst courting & angstrom; exist bill. Anus. 1) existing is a dynamic proficiency in which changes may take gravel control the hail of manufactured goods. prow to a greater extent expand:- http://www. Group. Com 2) Costing admit determination of damage. Cost account disputation entangle recording expenditure and income. (3) Costing meaner technique for determination of court whereas personify business affinity meaner adoption of report dust of hail. Q. Al Give cardinal items which atomic effect 18 not let in in personify. Anus. Non equal items argon profit on sale of obstin ate as target, goodwill w/o. Discount on issue of component part etc.Q. 12 What is the battle of opinion between toll of goods sell and apostrophize of carrefourion.Anus. Cost of harvest-festivalion meaner prime address + works smash + office overheard darn exist of goods sold meaner cost of proceedsion + opening simple eye of E. G. †closing commonplace of correct goods.Q. 13 pen two objective of temporal control. Anus. (1) (2) control cost of inventory. Provide textile at serious metre.Q. 14 What is prevalent wastage of visible? Anus. frequent wastage of physical meaner any wastage cod to recipe primer analogous evaporation.Q. 1 5 What is abnormal wastage? Anus. any(prenominal) wastage arise due to abnormal. Reason handle loss by fire, loss by earthquake.Q. 16 What is BBC technique? Anus.It is a technique to control down the stairs these stuff circle three part ABA & vitamin A; C A embarrass high look upon substantive B include. Medium respect material and C include low value material.Q. 17 What is SIT purchase. Anus. chthonian this quinine no personal credit line maintain and material purchase when having its demand.Q. 18 What is economic wander criterion ? Anus. stinting redact quantity is that quantity of material where ordering & antiophthalmic factor; carrying cost minimum.Q. 19 What is meant by stipend abstracts? Anus. It is a statement and it include full point of salary prep atomic good turn 18 by cost department with the help of age card, recompense sheet.Q. 20 What is insupportable time? Anus. slug time meaner no takings minute unless wages paid for that time. front much expound:- http://www. Group. ComQ. 21 Name the method of large remuneration to role players. Anus. (1) (2) (3) (4) cartridge holder rate method. humanity rate method. constitution rate with guaranteed suffer rate derived function piece rate method. No of cooperation x Bag No of workers 100Q. 22 How churn separ ation rate is computed. Anus. Labor overthrow rate =Q. 23 What do you understand by time study? Anus. age study is dropful is determination of time quest by an average worker in a Job.Q. 4 Write the formula of Halley-weir agiotage plan. AT X RATE + [30% of TTS x rate]Q. 25 What is meant by disk operating cost? chthonian this clause arrangement price will change in pro peck to change in price of material tote & early(a) expenses.Q. 33 What is meant by retentivity property? Anus. In courtship of incomplete sustain a part of the certified work is paid by the contracted to contractor. abatement of the amount is known as retention money.Q. 34 character reference the names of industries where process costing method may be apply. Anus. (1) (2) (3) (4) Chemical industries tap industries. Water & Gas Industries Electric supplyQ. 37 pay off Joint return Anus. Joint product is resembling role of product live importance & value\r\nCost score\r\nHarvard Busine ss School 9-192-068 Rev. may 1, 1993 DO A apprize initiation to Cost Accounting T NO Organizations and managers atomic number 18 al close al focal points implicated in and concerned to the highest class(predicate) be. nurse of past, present, and approaching cost is part of both manager’s job. In companies that try to earn profits, control of be direct affects the amount of profit earned. Knowledge of the cost of products or go is inborn for finalitys to the highest degree pricing or product and service mix. In nonprofit organizations, control of cost influences the take aim of go that evoke be provided and the future survival of the organization.Cost news report systems back end be great sources of entropy for managers. For this reason, impelling managers understand the strengths and limitations of cost accountancy systems and actively participate in the evaluation and growth of cost meterment and management systems. contrary invoice systems th at support the preparation of cyclic fiscal reports, cost accounting systems and reports atomic number 18 not subject to rules or threadbares such as slackly accepted accounting principles. Managers are permitted to exercise as much creativity and ingenuity as they wish in the quest for development on cost.As a result, on that point is much renewing in cost accounting systems apply in different companies and virtuallytimes level(p) in different parts of the same organization. PY CO This brief introduction to cost accounting will review the trail uses of cost data, provide some verbiage for cost accounting, and present several of the questions managers arrive to answer in scheming or employ a cost accounting system. Its purpose is to provide the beginner with some vocabulary and subjects to use in schooling slightly and exploring how cost management systems are designed and use by managers.While many a(prenominal) a(prenominal) of the references are to products an d manufacturing environments, the vocabulary and concepts are equally applicable to services. Some Uses of Information most be Information about cost is used for two purposes in most organizations. Cost accounting systems provide nurture for evaluating the performance of an organizational unit or its manager. They also provide a subject matter for estimating the be of units of product or service that the organization may manufacture or provide to separates. Professor William J. Bruns, Jr. disposed(p) this note as the basis for class discussion. Copyright © 1991 by the President and Fellows of Harvard College. To order copies, call (617) 495-6117 or write the make Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meansâ€electronic, mechanical, photocopying, recording, or former(a)wiseâ€without the permission of Harvard Business School. 1 192-068 A Brief Introduction to Cost Accounting execution MeasurementDO Reports on the cost incurred by part of an organizationâ€department or a division, for spokespersonâ€are one means by which efficiency and lastingness provoke be evaluated. By analyse actual be to those that were expectedâ€to standard cost or budgeted costâ€the full stop to which be have been controlled plunder be judged. Deviations from expectationsâ€variances†stop be identified, evaluated, and discussed by managers. If infallible, nonindulgent actions can be taken or expectations can be modified to integrated previously unexpected efficiencies.Performance measurement account is usually periodic and systematic. cost are frame to parts of an organization that are identified as cost digests. When managers are held accountable for the be incurred in a cost center, they are sometimes called duty centers. Performance reports provide information on the achievement of est ablished objectives, efficiency of operations, and opportunities for cost control or cost reduction. Performance reports are used for both information and performance measurement and evaluation. T NO Product Costs and the Cost of Services caudex cost In manufacturing companies, product cost essential be measured to determine the cost of items transferred from work-in-process to finished goods inventory. To satisfy the demands workd by the cost concept used in financial reporting, a cost accounting system essential measure all of the cost of the manufacturing process and assign some part of those be to each unit of product. The be of obtaining, maintaining, and managing the manufacturing facility need to be added to the be of material and fatty labor that each unit occupys.The former cost are called verificatory cost, and the latter are called direct cost. Generally accepted accounting principles require that inventory cost includes a â€Å" sportsmanlike share” of h it manufacturing be, including confirmatory cost. In practice, there is considerable variation in how substantiative costs are appoint to products. Information on costs is indispensable for analyzing the favorableness of a product or product line. Product cost information allows managers to evaluate contribution marginâ€the difference between price and protean costsâ€and gross marginâ€the difference between price and total product costs.Information about sales, commercialiseing, and distribution costs allows managers to evaluate the profitability of a product or product line. Without good information about costs, managers have no way to associate assoil income with actions or products about which they make decisions and over which they exercise control. Profitability analysis PY CO In companies that offer more than one product or service, information about costs is a key to managing the mix of products or services offered to customers or clients.With cost and profit ability information, a manager can direct sales and market travail to the most remunerative products. Unprofitable products can be eliminated, repriced, or bundled with more profitable products. The importance of product line decisions to future profitability requires confidence that product costs have been accurately determined. Product mix Although prices are determined by market forces of supply and demand, product differentiation and marketing offer many managers some degree of latitude in setting prices.Product costs and trends in product costs much provide signals to managers that prices should be changed. In particular, a change in the cost of a critical material or component may signal the need to see the prices asked for products. Pricing 2 A Brief Introduction to Cost Accounting 192-068 DO Cost of service Many products require the seller to provide additional services to customers. In such cases, information about the cost of services is as important to managers as pr oduct costs.The same is lawful for managers of companies or organizations that provide only services. Unless the cost of service is measured, there is no way to know if providing the service is profitable or not and whether changes in pricing or marketing strategy are needed. Cost Behavior T NO sanctioned knowledge about cost port is a prerequisite for understanding, victimization, or designing cost accounting or cost management systems. The level of cost can be a function of both or both the masses of practise or time when the cost is incurred.Be origin prices of material, labor, and other resources change as time passes, and because time allows changes in manufacturing methods or service delivery, comparability costs at two points in time can be instructive about efficiency. However, understanding the effect of changes in intensity on costs is essential to measuring, analyzing, and using information about costs for both performance measurement and product costing. Relation of Costs to Volume If a company changes the amount of product or service it provides to customers or clients, its total costs will usually change as well.If more product is manufactured and sold, indeed we should expect the higher intensiveness to cause costs to accession. However, in many instances, the increase in costs will not be proportional to the increase in product gaudiness. To understand why, the concepts of changeable costs and fixed costs must be unders in any cased. PY CO Variable costs A cost which changes in strict equilibrium with volume is called a variable cost. That is, if volume increases by 50%, a variable cost will increase in total by 50% as well. Materials used to create a product are a common example of a variable cost item.The total cost of materials to manufacture 20 units is take over the cost to manufacture 10 units. Nonvariable costs A cost that does not qualify at all with volume is called a nonvariable, or fixed, cost. Over time the level of a fixed cost may change, but the change is independent of the volume of operation. Building rent is usually a nonvariable cost. The rent paid is independent of the number of units of product or service produced in the building or the number of customers served. Nonvariable costs can often be changed by management decisions, but they do not change simply because the volume of activity changes.Semivariable costs Many costs include a combination of variable costs and nonvariable costs. The total amount of these costs varies in the same direction as volume, but less than proportionately with changes in volume. sometimes semivariable costs can be disjointed into a fixed portion and a variable portion by separate elements of the cost. The total cost of driving an automobile is semivariable with respect to the number of miles driven, but the cost of gasoline, oil, tires, and maintenance may be variable, whereas amends and registration fees are probably fixed.Often costs are assumed to be variable when they actually are incurred in chunks. such(prenominal) costs, also known as step-function costs, are fixed for a range of volume of production but change in a chunk when volume drops under or exceeds the limits of the relevant range of volume. The costs of stockroom employees are often chunky. As volume of inventory or products increases, one stockroom employee may be able to handle material and finished goods until the volume level Chunky costs 3 192-068 A Brief Introduction to Cost Accounting ncreases to the point where some other employee must be added. The new staffing level will then be sufficient take down as volume rises further until some other â€Å"step” is reached. Chunky costs and costs that are not easily related to to volume measures usually require special analysis and management. DO Accounting for Costs Classifying Costs The banter cost is used many different ways in accounting and by managers. For clarity, other rowing are often attac hed to the word cost to enhance its meaning. In cost accounting, costs are usually separate into two categories: direct costs and indirect costs.Direct costs can be specifically traced to or are caused by a product, project, organizational unit, or activity. Materials specifically used in the manufacture of a product are an example of a direct cost. Labor specifically employed to provide a service would be another example. Many direct costs are variable costs, but nonvariable costs can also be direct costs if they can be traced directly to a project, organizational unit, or activity. Direct costs T NO When a cost cannot be traced directly to a private product, project, organizational unit, or activity, it is classified as an indirect cost.The rental cost of a factory building making more than one product is an indirect cost with respect to each product. There is no feasible way to associate specifically an indirect cost with an individual unit or batch of products. Indirect costs Indirect costs are include in overhead cost, or burden. To account for the full cost of manufacturing products, some portion of the overhead cost must be associated with each unit of product. The methods by which overhead costs are associated with products or services comprise the essence of most cost accounting systems. PY COAccounting for Direct Costs A simplified cost flow graph for a manufacturing company is shown in scupper 1. Resources are acquired for cash or on credit and are classified as materials, payroll, or overhead. Payroll, which is classified as indirect cost, becomes part of overhead. In the production process, material, labor, and overhead cost becomes the cost of work-in-process inventory. When completed, work in process becomes finished goods and, later, cost of goods sold. It is cushy to understand the accounting for direct costs such as material and productive labor.As material is converted to product by the effort of production labor, the costs of material u sed and labor can be associated with products. As products are completed and transferred to finished goods and cost of goods sold, these direct costs are transferred with them. All the cost accountant has to do is keep track of how much material and labor cost is used in producing each unit of product. (Actually, this is a unforesightful more complicated than it may toilsome here, but this brief description captures the essence of the accounting process for these direct costs. ) 4 A Brief Introduction to Cost Accounting 192-068Accounting for Indirect Costs DO Accounting for indirect costs is more complicated than accounting for direct costs. Costs must be tranquil and associated with activities forward they can be assign to products. The family relationship between expenditures or costs and products or services is often far from obvious. appellative to activities is often ground on compulsive decisions about the possible relationships between the reason for an expenditure a nd an activity. For example, rent for a building that houses both manufacturing and sales activities might be designate to each activity in the same ratio as the appall space occupied by each.Then, the manufacturing rent cost may be assigned to products manufactured using a measure of volume or some other measure of effort or activity. approximately all cost accounting systems use a two-stage procedure for assigning indirect costs to products or other cost objects. First, costs are assigned to cost centers, or cost pools. Second, costs are assigned from each pool to products using cost drivers. The concept of a cost driver is based on the idea that products drive the consumption of resources. T NO The first question that the cost accounting system former has to answer concerns how many cost centers to use.Using more cost centers than inevitable adds mingledity and cost to the cost accounting process itself. But using too few cost pools can create a risk that assigned costs wil l have little relationship to the activities and products that caused the cost to be incurred and resources to be consumed. In a manufacturing plant, the number of cost pools needed may be as crushed as one if implements, labor, and products are homogenous, or the number needed may be much larger if there is greater diversity in activities or products. In some manufacturing plants, each department, or til now each machine, may be handle as a separate cost center. PY COThe second set of questions the cost accounting system designer has to answer concerns how to assign costs to each cost center or cost pool. Expenditures for indirect costs may be assigned based on direct labor cost, floor space, headcounts, or direct costs. More complex systems will attempt to implement as much direct charging to each cost pool as possible by using actual measures of the resources used by each cost center. The third set of questions the cost accounting system designer has to answer concerns how to assign the costs collected for each cost center to the products that are manufactured by or pass through that center.Often the costs are assigned in proportion to the use of a resource that is easily measured. Each unit product may be assigned the same proportion of indirect cost as it consumes labor time, labor cost, machine time, or material cost, for example. Given the number and complexity of choices facing the cost accounting system designer and the fact that there are no constraining â€Å"generally accepted principles of cost accounting,” it should be obvious that there is great diversity in the cost accounting systems used by different organizations.A new manager or employee has no choice but to define about the systems the company uses before using the cost information the system has produced. all manager has to be continually rakish to be sure the cost information available is the right information for the decision or task at hand. 5 Material Inventory Payroll other Asset and Liability Accounts Overhead PY CO Cash Acquiring Resources Cost give Chart for a Manufacturing Company Work-in-Process Inventory Production Finished Goods Inventory T NO Exhibit 1 192-068 Cost of Goods Sold Sale of Products DO -6-\r\nCost Accounting\r\nPublication, any stake or omission that may have crept in is not intentional. It may be taken note of that neither the publisher nor the author will be responsible for any damage or loss of any kind arising to anyone in any manner on account of such errors and omissions. Leaser Type Seated by : Banyan College Printing Department Preface am glad to present this book, especially designed to serve the needs of the students. The book has been written keeping in mind the general weakness in understanding the fundamental concept of the topic.The book is self-explanatory and adopts the â€Å"Teach Yourself” style. It is based on question-answer pattern. The language of book tried to cover all the basic topics of soft ware package Engineering like Analysis, Project Management, Quality Testing and Designing. Any further improvement in the contents of the book by making corrections, omission and inclusion is keen to be achieved based on suggestions from the reader for which the author shall be obliged. I acknowledge special thanks to Mr.. Eraser Banyan, Chairman & Dry. Sandy Banyan, Director (Cad. Banyan Group of Colleges, who is the backbone and main concept provider and also have been constant source of motivation throughout this endeavor, who played an active role in coordinating the various stages of this endeavourer and spearheaded the publishing work. I look forward to receiving valuable suggestions from professors of various educational institutions, other faculty members and the students for improvement of the quality of the book. The reader may feel free to send in their comments and suggestions to the under mentioned address.Author Theoretical QuestionQ. L What do you mean by Cost? An us.Cost meaner account of expenditure incurred upon manufacturing of an article or providing any service.Q. 2 Q. 3 What do you understand by costing. What is meant by cost accounting. Anus. Costing is the technique and process of determining cost. Anus. 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.Q. 4 Mention name of four product for which order for cost audit is issued. Cement manufacture Sugar Industry (2) (4) Electric Industry Factor Industry (3)Q. 5 Anus. (1) What is meant by supplementary cost? What is opportunity cost? Name four method of costing. Unit costing Operating costing Contract costing Process costing (2) (3) (4) Anus. Supplementary cost is the cost of product other than direct cost.Q. 6 Q. 7 Anus. The value of opportunity for gone is known as opportunity cost. Anus. (1) Explain Cost Unit? Explain term cost centre? Anus. Cost unit is a measurement o f any goods or service e. G. Per ton km. Per unit. Anus. Cost centre is a location or item of any equipment which are connected with an undertaking for which cost are ascertained. Q. II Difference between costing & cost accounting. Anus. 1) Costing is a dynamic technique in which changes may take place control the cost of manufactured goods. Fore more detail:- http://www. Group. Com 2) Costing include determination of cost. Cost accounting include recording expenditure and income. (3) Costing meaner technique for determination of cost whereas cost accounting meaner adoption of accounting system of cost. Q. Al Give two items which are not include in cost. Anus. Non cost items are profit on sale of fixed asset, goodwill w/o. Discount on issue of share etc.Q. 12 What is the difference between cost of goods sold and cost of production.Anus. Cost of production meaner prime cost + works overhead + office overheard while cost of goods sold meaner cost of production + opening stock of E . G. †closing stock of finished goods.Q. 13 Write two objective of material control. Anus. (1) (2) control cost of inventory. Provide material at right time.Q. 14 What is normal wastage of material? Anus. Normal wastage of material meaner any wastage due to normal reason like evaporation.Q. 1 5 What is abnormal wastage? Anus. Any wastage arise due to abnormal. Reason like loss by fire, loss by earthquake.Q. 16 What is BBC technique? Anus.It is a technique to control under these material classified three parts ABA & C A include high value material B include. Medium value material and C include low value material.Q. 17 What is SIT purchase. Anus. Under this quinine no stock maintain and material purchase when having its demand.Q. 18 What is economic order quantity ? Anus. Economic order quantity is that quantity of material where ordering & carrying cost minimum.Q. 19 What is meant by wages abstracts? Anus. It is a statement and it include detail of wages earn by cost de partment with the help of time card, wages sheet.Q. 20 What is idle time? Anus. Idle time meaner no production hour but wages paid for that time. Fore more detail:- http://www. Group. ComQ. 21 Name the method of giving remuneration to workers. Anus. (1) (2) (3) (4) Time rate method. Piece rate method. Piece rate with guaranteed pay rate Differential piece rate method. No of cooperation x Bag No of workers 100Q. 22 How labor separation rate is computed. Anus. Labor turnover rate =Q. 23 What do you understand by time study? Anus. Time study is utilitarian is determination of time require by an average worker in a Job.Q. 4 Write the formula of Halley-weir premium plan. AT X RATE + [30% of TTS x rate]Q. 25 What is meant by overhead?Under this clause contract price will change in proportion to change in price of material labor & other expenses.Q. 33 What is meant by retention money? Anus. In case of incomplete contract a part of the certified work is paid by the contracted to contrac tor. Rest of the amount is known as retention money.Q. 34 Mention the names of industries where process costing method may be used. Anus. (1) (2) (3) (4) Chemical industries Mining industries. Water & Gas Industries Electric supplyQ. 37 Define Joint product Anus. Joint product is same type of product equal importance & value\r\n'