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Home /  Concept of Cost Accounting
  • 771 Views
  • Estimated reading time : 31 Minutes
  • Cost Accounting | What is Cost Accounting | Concept of Cost Accounting

  • Arjun EP
  • Published on: August 14, 2021

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     Concept of cost accounting includes direct material, indirect material, direct labour, indirect labour, direct overhead, indirect overhead

      

    Keep in Mind (KIM)

    General principles of cost accounting

    Cost accounting is based on estimation before starting the production or service.

    Cost should be include or charged only after incurred.

    Cost accounting statement should give fact data; if there is any contingency or reserve, it should be shown separately.

    Past losses should not be recovered from present or future profit.

    Principle of the double-entry system of bookkeeping should be followed if possible.

     

    Materials

    Raw materials

    woods, rubber, glass, iron, steel, paper, cloth, leather, cotton etc

    Components

    accessory (extra pieces of equipment) etc

    Consumable materials

    soap, detergent, cleaning brush, cotton waste etc

    Maintenance materials

    spare parts, tools etc

     

    Some cost units under manufacturing or service

    Vehicle

    per unit

    Gas

    per cubic meter

    Gas cylinder

    Per unit

    Screws manufacturing

    per 1,000

    Brick work

    per 1,000

    Transport

    per passenger km or per ton km

    Electricity

    per megawatt, kilo watt or unit

    Textile

    per meter or per pound weight (Ib)

    Collieries

    per tone

    Petroleum or water

    per cubic liter

    Electrical/electronic

    per unit

         

     

     

    Concept of Cost

    Cost accounting is based on estimation.

    In cost accounting, something release for obtaining something.

    The amount is released for a specific activity.

    The specific activity may be a product, job, service, process or other activity.

    A cost is compound of three elements; they are material, labour, expenses or overhead.

     

    (A) MATERIALS

    All types of goods that are used in the process of production are called material.

    The expenses incurred for the material is termed as material cost.

    It also includes all those costs related to the purchase and storing of material.

    There are two types of materials; they are direct materials and indirect materials.

     

     

     

    Direct material

    A large part of materials in finished goods is known as direct materials.

    These material costs can be identified easily from the finished product.

    Sometimes the value of direct materials may be less than labour cost.

     

    Indirect material

    A small part of materials in finished goods is known as indirect materials.

    Without indirect materials, finished goods cannot be completed.

    Sometimes the value of indirect materials cannot be directly identified from a particular product.

     

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    Click on the link for YouTube videos

    Cost Reconciliation Statement

    http://tiny.cc/prvhuz

    Unit Costing (Output Costing)

    http://tiny.cc/srvhuz

     

     

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    (B) LABOUR

    Wages paid for workers are known as labour cost.

    It includes wages, salaries, bonus, provident fund etc.

    There are two types of labour in production; they are direct labour and indirect labour.

     

     

     

     

    Direct labour

    The wages paid to the workers directly engaged in manufacturing process goods in knows as direct lab our cost.

    Such a wage can be easily identified from job or process cost.

     

    Indirect labour

    The labour who does not directly engage with production is known as indirect labour.

    But he plays important role in the production.

    Sometimes indirect labour cannot be easily identified from a job or process cost.

     

     

    (C) OVERHEAD

    All the expenses other than materials and labour costs are known as expenses.

    They are royalty, rent, training expenses of new employees etc.

    There are two types of expenses; they are direct expenses and indirect expenses.

     

     

     

     

    Direct overhead

    Expenses other than direct material and direct labour are known as direct expenses.

    It is also known as chargeable expenses, prime cost, process expenses or productive expenses.

    Some direct expenses are the cost of plant hire, cost of designing, royalty, excise duty, cost of rectifying defective work etc.

     

    Indirect overhead

    Expenses other than indirect material and indirect labour are known as indirect expenses.

    These expenses cannot be identified for a particular job or product.

    Indirect expenses are rent of building, insurance premium, depreciation, repairs and maintenance, welfare and medical expenses etc.

     

    ###########

    Click on the link for YouTube videos

    Accounting Equation

    http://tiny.cc/c89jkz

    Journal Entries in Nepali

    http://tiny.cc/uaakkz

    Journal Entries

    http://tiny.cc/8aakkz

    Journal Entry and Ledger

    http://tiny.cc/caakkz

    Ledger

    http://tiny.cc/haakkz

    Subsidiary Book

    http://tiny.cc/399jkz

    Cashbook

    http://tiny.cc/889jkz

    Trial Balance and Adjusted Trial Balance

    http://tiny.cc/c59jkz

    Bank Reconciliation Statement (BRS)

    http://tiny.cc/q59jkz

    Depreciation

    http://tiny.cc/ugakkz

     

     

    Click on the link for YouTube videos chapter wise 

     

    Financial Accounting and Analysis (All videos)

    http://tiny.cc/jlersz

    Accounting Process

    http://tiny.cc/mlersz

    Accounting for Long Lived Assets

    http://tiny.cc/plersz

    Analysis of Financial Statement

    http://tiny.cc/slersz

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    BBS Second year eBooks | Business Communication | Cost and Management Accounting | Organizational Behavior | Human Resource Management | Fundamentals of Financial Management

     

     

     

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    जय गूगल. जय युट्युब, जय सोशल मीडिया 

     

     

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