Cost Statement:

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                                                                 Cost Statement                                                               (Amount in --)

A	Direct Material:
	Direct Material Inventory (Opening)	XX
	Add: Direct Material Purchase (Net)	XX
	Direct Material Available for consumption	XXX
	Less: Direct Material Inventory (closing)	(XX)
	Direct Material Consumed		XXX
B	Direct Labor		XXX
A+B	Prime Cost		XXX
C	Factory or Manufacturing overhead		XXX
A+B+C	Total Manufacturing Cost		XXX
	Add: Work In Process inventory (Opening)		XXX
	Less: Work in process inventory (closing)		(XXX)
D	Cost of Goods Manufactured		XXX
	Add: Finished Goods Inventory (Opening)		XXX
E	Cost of Goods available for sale		XXX
	Less: Finished Goods inventory (closing)		(XXX)
F	Cost of Goods Sold		XXX
	Add: Administrative Overhead		XXX
	Add: Selling and Distribution Overhead		XXX
G	Total Cost / Cost of Sales		XXXX
	Add: Profit		XXX
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Brief description of different types of costs:

Variable Cost: Variable cost is the cost which changes with the level of production. Total variable cost is variable but per unit variable cost is fixed.

Fixed Cost: Cost which does not change within a relevant range called fixed cost. Total fixed cost is fixed up to a relevant range but per unit fixed cost is variable.

Semi Variable Cost: When some variable and some fixed cost combined in total cost but individually variable and fixed cost cannot be identified then it is called Semi Variable Cost.

Important Notes: Any finished output is product cost before it is sale. When sold then it is period cost.

Prime Cost = Direct Labor + Direct Material

Conversion Cost= Direct Material + Manufacturing Overhead

Standard Cost: Standard cost is those which should be incurred in a particular production process under normal conditions. Standard Cost is usually concerned with per unit cost of direct material, direct labor and factory overhead.

Budgeted Cost: A Budget is a quantitative expression of management objectives. Budgeted costs are the forecasted cost on a total cost basis rather than on a unit cost basis.

Standard Cost and Budgeted Cost are used by Management to:

·         Plan upcoming performance

·         Conclude actual performance

Controllable Cost: Controllable cost are those cost which may be directly influence by unit mangers in a given time period.

Non Controllable Cost: are those which are not directly administered at given level of management authority

Cost, Expense and Loss

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Cost: Cost is defined as the “Value” of the sacrifice made to acquire goods or services measured in monetary terms by the reduction of assets or increase of liability at the time of benefit acquired.

The cost incurred is for present (Expired Cost) or future (Unexpired Cost) benefits.

Expenses: when the benefits of unexpired cost are utilized the cost become expenses. An expense is cost that has given a benefit and is now expired.

Loss: In certain instance the goods or services purchased become value less without having provided any benefit. These costs are called losses and appear on the income statement as a deduction from revenue in the period that the decrease in value occurred. 

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Relationship between Cost, Expenses and Losses:

Cost

 

Capital Expenditure                                                                                                                        Revenue Expenditure

Expired Cost

Expenses

Use of the asset in manufacturing and administration and selling process.

Unexpired Cost

Asset

                                                                                                                                                               

	Failure to use the asset in manufacturing and administration and selling process.		Loss

 

                                                                                                                                                                                 

Cost accounting vs. Management Accounting:

Cost Accounting is subset of Financial Accounting and Management Accounting.  Determination of product cost is the function of Management Accounting.

Distinction between Cost Accounting and Management Accounting:

Sl. No.	Cost Accounting	Management Accounting
01	Cost Accounting is a technique or Method for determining the cost of a project, process or product.	Management Accounting is the process of identification, measurement, accumulation, analysis, preparation and communication.
02.	Cost Accounting is confined to the area of product costing, cost and pricing.	The objective of Management Accounting is to have an information pool which will include any and all information that Management may need.

Relationship between Cost Accounting and Mathematics:

A cost accountant has to employee fundamental mathematical techniques for analysis or synthesis, calculating ratios, observation of ascertainment of variance etc. It does not indicate that cost accounting and mathematics are similar. Mathematics means a vast area of knowledge and not only the fundamental arithmetic or algebra.  

Relationship between Statistics and Cost Accounting:

Statistics is the science that includes collection, presentation, analysis and interpretation numerical information. Cost accounting is involved in completion of information for management purpose. So, Accounting to the former meaning a cost accountant is a statistician and some time more that that because he or she is to express cost concept in several way according to the needs of management, assists cost control, to give financial advice, to fix selling price etc.

Relationship between Economics and Cost Accounting:

Economists are interested in the affairs of industries or nations. Accountants (cost accountants) are interested only in the affairs of individual firms. Economists may macro and micro. New techniques of economic analysis with special reference to business decision have been developed. Accountants are also concerned with opportunity cost, marginal cost, differential cost etc, which are some of the subject matter of the economics. Economists and accountants both use mathematical tools of analysis like operation research with different techniques help any individual firm or government in making decisions as to the best allocation of resources.

It is a fact that economist and accountants work in different dimension. Economists rely in many cases on the information supplied by accountants. Economist now a days are becoming more and more interested in topics of accounting.

A concept of profit advocated by economists widely differs from that advocated by accountants.

Accountants’ value fixed assets at historical cost less depreciation. Accountants do not have any objection to the economists view that asset have value only when they contribute to the future income. So, assets may be revalued so that they can represent their true worth.

Objectives of Cost Accounting:

• To determine cost
• Planning of cost – needs future and estimated information.
• Controlling of cost- cost reduction through evaluation of performance.

Financial Accounting vs. Cost Accounting:

•          In cost accounting all information are not relevant but in financial accounting all information are relevant. Cost accounting only represent relevant information.
•          Financial Accounting deals only with historical costs. Cost accounting deals not only with historical cost but also actual and future cost.

Definition of Cost Accounting:

1. 01.   Cost accounting is primarily concerned with the accumulation and analysis of information relevant for internal use by managers for planning, controlling and decision making.
2. 02. Cost Accounting is a technique or method for determining the cost of a project, process or thing used by majority of the legal entities in a society or society or specifically prescribed by an authoritative accounting group. – By National Association of Accountants Statement on management accounting: management accounting techniques. Statement no. 02.

Cost accounting refers to the process of determining and accumulating the cost of some particular product or activity. It also covers classification, analysis and interpretation of costs. The costs so determined and accumulated may be the estimated future cost for planning purpose or actual (historical) costs for evaluating performance.

Basis of Accounting

Method used to determine when revenues and expenses (with associated assets and liabilities) are recognized in the accounts of a firm, and reported in its financial statements. In accrual basis accounting, for example, revenues are recognized when earned and expenses are recognized when incurred, whether or not any cash is received or paid. In cash basis accounting, however, revenues and expenses are recognized only when cash is received or paid, irrespective of the timing of actual sales or purchases.