Q/1: Definition of 'Cost Accounting' A type of accounting process that aims to capture a company's costs of production by assessing the

input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance. Q/2: Objectives of Cost Accounting The main objectives of Cost Accounting are as follows: (i) Ascertainment of cost, (ii) Determination of selling price, (iii) Cost control and cost reduction, (iv) Ascertaining the profit of each activity, (v) Assisting management in decision-making. Ascertainment of Cost There are two methods of ascertaining costs, viz., Post Costing and Continuous Costing. Post Costing means, analysis of actual information as recorded in financial books. It is accurate and is useful in the case of "Cost plus Contracts" where price is to be determined finally on the basis of actual cost. Continuous Costing, aims at collecting information about cost as and when the activity takes place so that as soon as a job is completed the cost of completion would be known. This involves careful estimates being prepared of overheads. In order to be of any use, costing must be a continuous process. Cost ascertained by the above two methods may be compared with the standard costs which are the target figures already compiled on the basis of experience and experiments. Determination of selling price Though the selling price of a product is influenced by market conditions, which are beyond the control of any business, it is still possible to determine the selling price within the market constraints. For this purpose, it is necessary to rely upon cost data supplied by Cost Accountants. Cost control and cost reduction "The guidance and regulation, by executive action of the cost of operating an undertaking". The word "guidance" indicates a goal or target to be guided; 'regulation' indicates taking action where there is a deviation from what is laid down; executive action denotes action to "regulate" must be

initiated by executives i.e. persons responsible for carrying out the job or the operation; and all this is to be exercised through modern methods of costing in respect of expenses incurred in operating an undertaking. To exercise cost control, broadly speaking the following steps should be observed: (i) Determine clearly the objective, i.e., pre-determine the desired results; (ii) Measure the actual performance; (iii) Investigate into the causes of failure to perform according to plan; and (iv) Institute corrective action. The target cost and/or targets of performance should be laid down in respect of each department or operation and these targets should be related to individuals who, by their action, control the actual and bring them into line with the targets. Actual cost of performance should be measured in the same manner in which the targets are set up, i.e. if the targets are set up operation-wise, then the actual costs should also be collected operation-wise and not cost centre or departmentwise as this would make comparison difficult. Cost Reduction, may be defined "as the achievement of real and permanent reduction in the unit cost of goods manufactured or services rendered without impairing their suitability for the use intended or diminution in the quality of the product." Cost reduction should not be confused with Cost control. Cost saving could be a temporary affair and may be at the cost of quality. Cost reduction implies the retention of the essential characteristics and quality of the product and thus it must be confined to permanent and genuine savings in the cost of manufacture, administration, distribution and selling, brought about by elimination of wasteful and inessential elements from the design of the product and from the techniques carried out in connection therewith. In other words, the essential characteristics and quality of the products are retained through improved methods and techniques and thereby a permanent reduction in unit cost is achieved. The definition of cost reduction does not, however, include reduction in expenditure arising from reduction in taxation or similar Government action or the effect of price agreements. The three-fold assumptions involved in the definition of cost reduction may be summarized as under: (a) There is a saving in unit cost. (b) Such saving is of permanent nature. (c) The utility and quality of the goods and services remain unaffected, if not improved.

Ascertaining the profit of each activity The profit of any activity can be ascertained by matching cost with the revenue of that activity. The purpose under this step is to determine costing profit or loss of any activity on an objective basis. Assisting management in decision making Decision making is defined as a process of selecting a course of action out of two or more alternative courses. For making a choice between different courses of action, it is necessary to make a comparison of the outcomes, which may be arrived under different alternatives. Such a comparison has only been made possible with the help of Cost Accounting information. Q/3: Elements of Cost Managerial Accounting Book- Garrison er page 40 er summery of cost terms er chart ta. Each point describe korte hobe sobi eke. Q/4: Steps of Preparing a Cost Sheet Calculation of Materials Consumed The aim for preparing a cost sheet is to show the various types of costs incurred by the factory in the course of its operations. The cost sheet consists of particulars and amount columns. In the particular columns, you show the different kinds of expenses of the company. Calculating the materials consumed is the first step in how to prepare cost sheet. Materials consumed is calculated by adding the purchased raw material cost and carriage inward to the opening stock of raw materials and then subtracting the closing stock of raw materials from this total. Materials Consumed = (Opening stock of raw materials + purchase of raw material + carriage inward) - (closing stock of raw material). Calculation of Prime Cost In the discussion on how to prepare cost sheet, we now discuss how to calculate prime cost. Prime cost is calculated by adding direct wages and direct expenses to the materials consumed total. Direct wages are the wages given to workers in the factory and direct expenses are the expenses incurred while making the finished goods. Prime Cost = Materials consumed + direct wages + direct expenses. Calculation of Factory cost The next step in the cost sheet preparation is the calculation of factory cost. The factory cost is calculated by adding the factory overheads to the prime cost. The factory overheads are the expenses related to the factory and are in no way related to administration and marketing expenses. These factory overheads can include lighting costs, salaries for workers, machinery cost, rent for factory, insurance for factory, power costs, fuel cost etc. Overhead is actually the sum total of indirect material, indirect wages and indirect expenses. Factory Cost = Prime cost + sum of all factory overheads.

Calculation of Cost of Production The cost of production can be calculated by adding the office and administration overheads to the factory cost. Now, the office and administration overheads are the salaries of managers, director's fees, office light expenses, stationery expenses, building maintenance expenses etc. Cost of Production = Factory cost + office and administration overheads. Once this cost of production is calculated, you need to add the opening stock of finished goods and then subtract the closing stock of finished goods before we calculate the cost of sales. Calculation of Cost of Sales or Total Cost The total cost can be calculated by adding the selling and distribution overheads to the cost of production. These selling and distribution overheads are mainly the expenses on promotion and marketing related activities. These can include postage expenses, transportation expenses, advertising expenses, marketing expenses and carriage outward. Total Cost = Cost of production + selling and distribution overheads. Calculation of Total Sales The total sales can be calculated by adding the total cost and the net profit of the firm. This is the last part of the cost sheet. Total Sales = Total cost + net profit. Q/5: TYPES OF COSTS 1. Actual costs are the costs which the firm incurs while producing or acquiring a good or a service like the cost on raw material, labor, rent, interest, etc. The books of account generally record this information. The actual costs are also called the outlay costs or acquisition costs or absolute costs. 2. Opportunity costs or alternative costs are the return_ from the second-best use of the firms resources which the firm forgoes in order to avail of - the return from the best use of the resources. 3. Outlay costs mean the actual expenditure incurred for producing or acquiring a good or service. These actual expenditures are recorded in the books of account of the business unit, e.g., wage bill. These costs are also known as actual costs or absolute costs. 4. Sunk costs are the costs that are not altered by a change in quantity and cannot be recovered; e.g., depreciation. Sunk costs are a part of the outlay costs. However, most business decisions require cost estimates that are essentially incremental and not sunk in nature. 5. The direct or traceable or assignable costs are the ones that have direct relationship with a unit of operation like a product, a process or a department of the firm. In other words, the costs which are directly and definitely identifiable are the direct costs. 6. T h e indirect or no traceable or common or non-assignable costs are those whose course cannot be easily and definitely traced to a plant, a product, a process or a department.

7. Controllable costs are those which are capable of being controlled or regulated by executive vigilance and, therefore, can be used for assessing executive efficiency. 8. Non-controllable costs are those which cannot be subjected to administrative control and supervision. Most of the costs are controllable, except, of course, those due to obsolescence and depreciation. 9. F i x e d ( o r , c o n s t a n t ) c o s t s a r e t h a t p a r t o f t h e t o t a l c o s t o f t h e f i r m which does not vary with output, e.g. expenditu res on depreciation, rent of land and buildings, property taxes, etc. If the period under consideration is long enough to allow the necessary adjustments in the capacity of the firm, the fixed costs no longer remain fixed. These can then be varied. To an economist the fixed costs are overhead costs and to an accountant these are indirect costs. When the output goes up the fixed cost per unit of output comes down as the total fixed cost is then divided between larger numbers of units of output. 10. Variable costs, on the other-hand, are directly dependent on the volume of output or service. Variable costs (for example, expenditure on labor , raw material etc.) increase but not necessarily in the same proportion as the increase in output. The d e g r e e of proportionality between the variable c ost and output depends upon the utilization of fixed facilities and resources during the process of production.