Professional Documents
Culture Documents
Accounting
It is a language about financial information (which is measurable in terms of money) commonly used in business.
Branches Of Accounting
Accounting
Financial Accounting
Cost Accounting
Management Accounting
User Group
User Group Financial Accounting Investors Lenders Govt Agencies Cost & Management Accounting Managers Directors
Suppliers
Management Employees
Branches Of Accounting
Financial Accounting is an art of recording (Journal), classifying (Ledger), summarizing (Trial balance), reporting (Profit & Loss A/c & Balance Sheet) and analysis (Interpretation) the financial information. Cost Accounting deals with ascertainment, measurement, accumulation, budgeting and evaluating cost structure of the entity. Management Accounting deals with decisions relating to the generation and effective utilization of the financial resources of an entity.
Cost Accounting
So Cost accounting is a specialized branch of accounting which provide processed set of information / statements to the management which assist them in decision making. In cost accounting cost of product or a process is; Ascertained Measured Accumulated
Management Accounting
Management is central coordinating body in an entity Management is concerned with the maximization of wealth through
For this purpose information provided by cost accounting is analyzed by the management for decision making and management control function.
Management Accounting
Reports generated through management accounting are used internally. Major function of management accounting:
Controlling
Decision making Pricing Make or Buy Shut down or Continued operation Equipment Replacement
Provides information relating to cost of production. Determines the appropriate selling price. Discloses profitable products, areas and activity level. Helps in make or buy decision. Budgeting relating to production function. Controls production variances. Provides information to financial accountant.
Classification Of Cost
Cost Classification
Direct Cost
Indirect Cost
Direct Material
Direct Labor
Factory Overhead
Direct Cost
direct cost
Direct material costs are those cost of material that are traceable in full in the cost of a product or services
For example wood in manufacturing of table
Direct labor cost are the specific cost of the worker in producing a or service
For example labor involve in cutting wood
Other Direct Expenses These are expenses other than direct material and direct labor which have been incurred in full as direct consequences of producing product or services
Indirect Cost
The cost that is incurred in producing product or services but which can not traced in full
FOH means all expenses of factory other than direct material, direct labor and other direct production expenses.
Indirect material Indirect Labor Deprecation of machinery Factory utility bills
Cost classification
Summary
Material cost Labor cost Other production Total production
cost
cost
Direct
Direct
Direct
Prime cost
Indirect
Indirect
Indirect
= =
Total
Total
Total
Cost classification
Direct material Direct labor Other direct cost Prime cost FOH Indirect material Indirect labor Electricity bill Rent of factory Depreciation
Total factory cost
Behavior Of Cost
Fixed cost
Fixed cost is a cost that do not vary with the level of production. Simple means the variation in production has no impact on fixed cost. For example rent of building and accountant salary etc
3000
Fixed cost
2000
1000 100 200 300
No. of units
Fixed cost
No. of units
Variable Cost
The expenses that vary in direct proportion to volume of product. For example Prime cost.
Variable cost
No. of units
Units of Labor
10 20
The cost that is partly fixed and partly variable cost. For example electricity bills, salesman salary.
3000 Semi variable cost 2000 1000 100 200 No. of units 300
Summary
If the production volume increases
Per unit Total
Fixed cost
Decreases
Constant
Variable cost
Constant
Increases
Total cost
Decreases
Increases
Summary
If the production volume decreases
Per unit Total
Fixed cost
Increases
Constant
Variable cost
Constant
Decreases
Total cost
Increases
Decreases
Total cost
Total cost include both fixed cost and variable cost
As VC added in FC shifts upward Total cost Variable cost
3000 Total cost
2000
1000 100 200 No. of units 300
Fixed cost