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Cost Accounting Overview

Cost accounting is a specialized branch of accounting focused on recording, analyzing, and allocating costs to aid management in decision-making. Key objectives include determining production costs, controlling expenses, and providing a basis for pricing and budgeting. Various costing methods and inventory valuation techniques are discussed, along with concepts like cost-volume-profit analysis and standard costing.

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4 views6 pages

Cost Accounting Overview

Cost accounting is a specialized branch of accounting focused on recording, analyzing, and allocating costs to aid management in decision-making. Key objectives include determining production costs, controlling expenses, and providing a basis for pricing and budgeting. Various costing methods and inventory valuation techniques are discussed, along with concepts like cost-volume-profit analysis and standard costing.

Uploaded by

lumber jack
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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📘 Cost Accounting Notes

📌 1. Definition of Cost Accounting

Cost accounting is a branch of accounting that deals with recording,


classifying, analyzing, and allocating costs associated with a process or
product to aid internal management in decision-making.

📊 2. Objectives of Cost Accounting

Determine cost of production

Control and reduce costs

Assist in decision-making

Provide basis for pricing

Aid in budgeting and performance evaluation


🧾 3. Types of Costs

Type Description Example

Fixed Cost Does not vary with output Rent, Salaries

Variable Cost Varies directly with output Raw materials, Direct labor

Semi-variable Partly fixed, partly variable Electricity bill with base


charge

Direct Cost Can be traced to a product Direct materials, Direct labor

Indirect Cost Cannot be directly traced to a product Depreciation,


Factory rent

🛠️4. Elements of Cost

1. Direct Materials – Raw materials used directly in production

2. Direct Labor – Wages of workers directly involved in production

3. Direct Expenses – Specific expenses tied to a job/product


4. Factory Overhead – Indirect costs (e.g. supervision, utilities)

🧮 5. Cost Sheet Format (Basic)

Particulars Amount

Prime Cost

Direct Materials

Direct Labor

Direct Expenses

Factory Cost

+ Factory Overhead

Cost of Production

+ Administrative Overhead

Cost of Goods Sold (COGS)

+ Selling & Distribution

Total Cost
📦 6. Inventory Valuation Methods

FIFO – First In, First Out

LIFO – Last In, First Out

Weighted Average Cost – Total cost / Total units

🛠️7. Costing Methods

Method Used for

Job Order Customized jobs or services

Process Costing Mass production of identical items

Activity-Based Costing (ABC) Allocates overhead based on activities

Batch Costing For production in batches

Contract Costing Long-term contracts like construction

🔄 8. Cost-Volume-Profit (CVP) Analysis

Helps determine the effect of changes in cost and volume on a firm’s profit.
Break-even Point (BEP):

\text{BEP (units)} = \frac{\text{Fixed Costs}}{\text{Selling Price per Unit}


- \text{Variable Cost per Unit}}

📋 9. Standard Costing & Variance Analysis

Standard Cost: Pre-determined cost

Variance: Difference between actual and standard cost

Material Variance = (Standard Qty × Std Price) – (Actual Qty × Actual Price)

🔍 10. Marginal Costing

Only variable costs are considered in decision-making.

Contribution Margin = Sales – Variable Costs

Used in:

Make or buy decisions


Accept or reject special orders

Pricing decisions

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