Professional Documents
Culture Documents
BASIC CONCEPTS
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2.1
2.2
2.3
2.4
2.5
2.6
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2. Cost Accounting
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1. Cost Accountancy
3.1
3.2
3.3
3.4
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6.1 Cost
6.2 Pre-determined Cost
6.3 Standard Cost
6.4 Estimated Cost
6.5 Marginal Cost
6.6 Differential Cost
6.7 Discretionary Cost
6.8 Decision Driven Cost
6.9 Managed / Policy Cost
6.10 Postponable Cost
6.11 Imputed / Notional Cost
6.12 Inventoriable / Product Cost
6.13 Opportunity Cost
6.14 Out-of-pocket Cost
6.15 Joint Cost
6.16 Period Cost
6.17 Sunk Cost
6.18 Committed Cost
6.19 Shut down Cost
6.20 Relevant Cost
6.21 Replacement Cost
6.22 Absolute Cost
6.23 Cost Centre
6.24 Cost Unit
6.25 Cost Allocation
6.26 Cost Apportionment
6.27 Cost Absorption
6.28 Responsibility Centre
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7. Elements of Costs
7.1 Material Cost
7.2 Labour Cost
7.3 Expenses
7.4 Overheads
8. Classification of Costs
8.1
8.2
8.3
8.4
By
By
By
By
Nature
Behaviour
Element
Function
8.5 By Controllability
8.6 By Normality
8.7 By Time When Computed
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Job Costing
Batch Costing
Contract Costing
Process Costing
Operating Costing
Single Output or Unit Costing
Multiple Costing
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10.1
10.2
10.3
10.4
10.5
10.6
10.7
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1. COST ACCOUNTANCY
2. COST ACCOUNTING
2.1 Definition of Cost Accounting :
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Cost Control
Cost Reduction
1. It represents efforts made
1. It represents achievement
ds towards achieving a target
of reduction of cost .
or a goal.
2. The process of cost control 2. Cost reduction is not
is to Set-up a target,
contended merely with the
investigate the variations and maintenance of performance
take remedial action.
with standards.
3. It assumes existence of
3. It assumes that the
norms or Standards which are
standards can be improved.
not challenged.
4. It is preventive function.
4. It is a corrective function.
5. It is continuous process of
5. Sometimes, it lacks a
analysis of all the factors
dynamic approach.
affecting cost.
(v) Facilitation of Inventory Valuation :
As per the Accounting Standard 2 on Valuation of
Inventories, Inventories are to be valued at "lower of
cost and net realisable value". Costing accounting
determines the ascertainment of this "cost" based on
which the inventory is valued.
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Expen
Cost Sheet giving details as to component wise
break-up of each element of cost as compared with
previous years data, competitors data.
Material Consumption Statement, showing total
quantity and types of material issued and used,
wastages if any. Comparison of actual v/s standard.
Labour Utilization statement showing total
number of hours, budgeted & actually worked, types
of labour utilised, idle time etc.
Labour Turnover , cost of recruitment and training
of new employees.
Overheads Statement giving break-up of various
types of overheads, the actual overheads incurred as
against the budgeted and the over/under absorption,
if any
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vii.
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Limitations of Financial
Accounting
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Decision-making
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Difference
Difference
Difference
Difference
Difference
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computation
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use
records
applicability
a.
b.
c.
d.
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Transport
Tonne-kilometer
Passenger-kilometer
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Each article
Each contract
Each job
Each job
Bed or day
Kilowatt hour
Number
Tonne, bag
Tonne
Litre, gallon,
tonne,kilogram
Tonne
Tonne
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Sugar
Coal
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Chemical
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Furniture
Bridge construction
Interior decoration
Advertising
Nursing home
Power
Bricks
Cement
Steel
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Industry
Automobile
Bicycle
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Types -
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7. ELEMENTS OF COST
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7.3 Expenses :
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7.4 Overheads :
Overheads is the sum total of indirect materials, indirect
labour and indirect expenses. Functionally overheads can
be classified as under i.
ii.
iii.
iv.
Selling overheads
Distribution overheads
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8. CLASSIFICATION OF COST
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Refer 7 above.
8.4 Classification By Function :
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Marginal Costing
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Differential Costing
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Scope
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Variability
Only variable costs are
considered.
Applicability
Applicable only to short term decision
making.
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Total variable
cost
Incurred cost
Unit variable
cost
Increases in proportion
to output
Cost of conversion
Standard cost
Period cost
Actual cost
Labour and
overhead
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Incremental
cost
Budgeted cost
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Toy making
ii.
iii.
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Cement
Radio
Bicycle
Ship building
Hospital. (3 marks)
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Practical
Questions
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May'95
Nov'95
May'96
Nov'96
May'97
Nov'97
May'98
Nov'98
May'99
Nov'99
Descriptive
Questions
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Total
Marks
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Material
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Introduction :-
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Where
A = Annual Consumption of Qty
B = Buying cost OR cost of placing one order.
CS = Cost of storing one unit of material for one year.
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If the cost of the Investment is given then such cost also will
be part of CS
Note :- Whenever Discount Factor given in a problem. These
Formula will not be apply for calculating EOQ.
Reorder Period OR Delivery Period OR Lead Time :-
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B]
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A]
C]
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Danger Level :-
7]
stop.
8]
9]
Material Inventory Period :It represents the period of one Consumption Cycle.
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LABOUR
INTRODUCTION :-
This Chapter deals with Calculation of wages under Piece rate system
& Time rate system. It is also covers Labour Turnover; it's impact on
profit & additional coverage will be General problem relating to labour
calculation.
PART I
Piece rate system of labour Calculation :In this Approach wages are paid according to Quantity
produced by the workers.
>=100%
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Level of Efficiency
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Remuneration
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Level of Efficiency
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Above 100%
PART II
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PART III
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Mixed Approach :-
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Level of Efficiency
< 100%
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100%
Remuneration
Actual Hrs Work X Std Rate Per Hour
Actual Hrs Work X [ Std Rate Per
Hour + 20%]
Actual Qty Produced X High Piece
rate
> 100%
OR
Actual Hrs Work X Std Rate per Hour
+ 1/3
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OVERHEADS
This chapter deals with detail analysis of Factory overhead, the Basis
coverage is as under :-
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[2]
[3]
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E.g :
Factory Overheads A/c
Actual Overheads
Incurred
Over Absorption
Overheads charged to
100000
WIP
20000
120000
[Bal Fig]
120000
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E.g :
Overheads charged to
WIP
80000
Under Absorption
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100000
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Actual Overheads
Incurred
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100000
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100000
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METHO
ACTUAL LABOUR HOUR WORK X STD RATE LABOUR HOUR
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APPROACH
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APPROACH
I
APPROACH Nullify the Over and Under Absorption Situation by revising std rate of
III
absorption.
Revise Std Rate of Absorption
Original Standard Rate [+/-] Supplementary Rate
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Expenses of the Machine & Productive Hours of Machine, both should be calculated for
the period operation.
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2] Integrated Approach
It is pure costing approach in which Person A/c & Real A/c's are
ignored. In order to complete Double effects, Artificial Account is
prepare " General ledger Adjustment Account"
In this approach those item are ignored which are not considered in
cost sheet .
We have to deal following account
[1]
[2]
[4]
WIP Account
[5]
[6]
[7]
[8]
[9]
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[10]
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Flow of Transaction :-
Indirect Material
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Direct Labour
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Direct Material
Indirect Labour
[10] Cash/ Credit Sale done Transferred to Costing Profit and Loss
Account.
[11] Costing Profit and Loss Account Transferred to GLA Account
1
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SALE OF SCRAPE
GENERAL LEDGER ADJUSTMENT ACCOUNT ..... Dr
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TO WIP ACCOUNT
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ACCOUNT
SALES ACCOUNT ..... Dr
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TO COST OF SALES
PROFIT TRANSFERRED TO GENERAL LEDGER ACCOUNT
GENERAL LEDGER ADJUSTMENT ACCOUNT ..... Dr
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Integrated Approach :-
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JOB COSTING
When continuous production is not carried out but production
depends on specific order received from customer, then in such case
technique of Job costing is adopted for cost & profit calculation. Each
order represent separate Job and we have to prepare Job cost sheet.
The technique of Job costing is applied for preparation of Tender or
Quotation.
In Absence of Information following points should be considered
for preparing Job cost sheet.
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[5] Normally in Job Cost Sheet there will be no opening and closing
WIP & Finished Goods. Even sale of scrape will not be taken place.
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[6]
Calculate % of office overheads to Works Cost using data of
previous period. Apply this % to works cost of job cost sheet, & we will
get office overheads for job cost sheet.
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We have to prepare cost sheet for particular Batch size. The Overall
amount of fixed cost will not change according to Batch size but per
unit fixed cost will be change according to Batch size.
If Semi variable expenses take place then it will be divided into
Variable cost and Fixed cost.
This Techniques is utilised of manufacturing items like Pencils, Pins,
Clips and Other small stationary Items, small Electrical Items, Etc.
OPERATING COSTING
Introduction
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Fixed Cost are those Cost which change according to time Factor &
doesn't have any relation with the quantity involves.
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Process Costing
Introduction
Process Account
Rate Amt
Qty
Rate
Amt
xx
xx
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By Sale of
Scrape
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To Indirect
Material
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By Sale of
Wastage
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To Direct
Labour
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xx
xx
By Normal Loss
xx
xx
xx
To Indirect
Labour
xx
xx
xx
By Sale of
Output
xx
xx
xx
To Direct Exp
xx
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By Loss on sale
of Output
xx
xx
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To Indirect Exp
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xx
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By Output
transferred to
Next Process
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xx
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To Abnormal
Gain
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To Profit on
sale of Output
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To Direct
Material
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Dr......
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To Process Account
5] Abnormal Gain
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Process Account
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The value of closing stock will be deducted from debit side instead
of writing on credit side. The amount of profit will appear in Profit
column & total column but never in cost column.
EQUIVALENT PRODUCTION
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The opening WIP will be completed 1st & then fresh input will be
completed , due to this Closing is available out of fresh Input.
Following steps will be followed as working Note.
Prepare Process Account with Qty Data
STEP II :-
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STEP I :-
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STEP III :-
(QTY)
Material
Labour
Fact.
Overheads
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
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Particulars
Equivalent Quantity
xx
xx
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Factory
Overheads
Rs.
Rs.
Rs.
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xx
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xx
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Net Cost
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Material
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Equivalent C.P.U
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Equivalent Qty
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(+)
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X Equivalent CPU
xx
X Equivalent CPU
Equivalent Qty
X Equivalent CPU
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CHAPTER 17
COST AUDIT & COST ACCOUNTING RECORD RULES
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1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
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1. Cost Audit
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SYNOPSIS :
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Protective Objectives
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To The Government
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To the Society
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(iii) Labour
The cost auditor has to ensure that
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(v) Inventory
The cost auditor has to ensure that -
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2.1 Introduction :
Before the imposition of statutory cost audit, the
Government of India had issued Cost Accounting
Record Rules under Section 209 (1)(d) of the
Companies Act, 1956 in respect various products /
industries. According to the rules, all the companies
involved in production / manufacturing activity, for
[May'99]
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(ii) Labour
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(iii) Overheads
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(vii) Interest
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xii.
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xv.
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xvii.
xviii.
xix.
xx.
xxi.
xxii.
xxiii.
xxiv.
xxv.
xxvi.
xxvii.
xxviii.
xxx. Bearings
xxxi.
i Milk Food
xxxii.
ii Chemical Industries
xxxiii. iii Formulations
xxxiv.
iv Cosmetics and Toiletries
3. ANALYSIS OF PAST QUESTIONS
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Exam
Descriptive Questions
May'95
Nov'95
May'96
Nov'96
May'97
Nov'97
3
4
6
Practical
Questions
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Total Marks
3
4
6
May'98
Nov'98
May'99
Nov'99
7
3
7
3
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Introduction :-
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Method Of Depreciation :-
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Cost Books
Add:- 1)
xx
2)
xx
3)
xx
xx
xx
xx
2)
xx
3)
xx
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Less :- 1)
Profit as Per
finance Books
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COST SHEET
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Cost Sheet :-
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Particulars
Raw Material / Direct Material :Opening Stock
Purchases
Carriage Inward/ Fright
(-) Sale of Material
Raw Material lost / destroyed
Purchase Return
Raw Material Consumed
Royalty
Production Wages
Amt
Amt
xx
xx
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xx
xx
xx
xx
xx
xx
xx
CPU
Factory wages
Direct Expenses
Chargeable Exp
Special tools
PRIME COST
Add :- Production / Factory / Works
Overheads
Factory Rent and Taxes
Power Electricity
Repairs and Maintenance
Manufacturing Exp
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xx
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xx
xx
xx
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(xx)
xx
NET SALE
Note :-
[1]
Interest paid on loan Dividend Paid , Bank charges Etc are
Financial Exp not considered in Cost Sheet.
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[2]
In the absence of any instruction Cash Discount and Bad Debts
are taken as selling Exp. Alternatively if they are taken as Finance Exp,
they will not taken in Cost Sheet.
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CHAPTER 16
UNIFORM COSTING & INTER-FIRM COMPARISON
1. Uniform Costing
1.1
1.2
1.3
1.4
1.5
1.6
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2.2
2.3
2.4
2.5
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1.UNIFORM COSTING
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[May'98]
Size of participating firms
Method of production employed
Accounting methods, principles and procedures
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2. INTER-FIRM COMPARISON
[May'96]
2.1 Meaning of Inter-firm Comparison : [May'95,
Nov'97]
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Practical Questions
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Descriptive Questions
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Exam
May'95
Nov'95
May'96
Nov'96
May'97
Nov'97
May'98
Nov'98
May'99
Nov'99
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