cost & mgmt accounting
TRANSCRIPT
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Cost & ManagementAccounting
Syed Sohail Ahmed M.Com, DAIBP, FCMA,
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Cost Accounting
Syed Sohail Ahmed M.Com, DAIBP, FCMA,
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FORM OF BUSINESS
Trading
Service
Manufacturing
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TRADING BUSINESS TransactionsMr. Afaq commenced business with cash investment of Rs75,000.
Paid Shop Rent for three months at Rs 5.000 per month.
Bought Furniture for Rs 12,000 cash.
Purchased goods for Rs 2,000 cash.
Purchased goods from AAA Store Rs 5,000 & paid cash.
Sold goods for Rs 7,000 cash.
Sold merchandise to HHH Traders for Rs 13,000.
Paid advertising expenses Rs 500.
Paid Cash Rs 8,000 to J.J. Store on account.
Purchased Equipment from Modern Equipment HouseRs 15,000. The payment of Rs 3,000 was made & Afaqhas promised to pay the remaining amount in a week.
Received Cash from Noble Store Rs 22,000.
Withdrew cash for personal use Rs 2,000.
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SERVICE BUSINESS TransactionsJamil opened a Training Center with cash investment of Rs 95,000
Paid Office Rent for six months at Rs 5.000 per month. Purchased Furniture Rs 12,000 on account from J.J. Store.
Purchased Office Supplies (Stationery) for Rs 2,000 oncredit from P Stationers.
Rendered services and collected cash Rs 24,000.
Paid Electricity Bill for the month Rs 1,500 Rendered services and sent bill to Noble Traders Rs 47,000
Paid Cash Rs 8,000 to J.J. Store on account. Purchased Equipment from Modern Equipment House Rs
15,000. The payment of Rs 3,000 was made and Mr. Afaqhas promised to pay the remaining amount in a week.
Received Cash from Noble Traders Rs 22,000.
Withdrew cash for personal use Rs 2,000.
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MANUFACTURING TransactionsDuring the month, the following transactions took place in City Sugar Mill.
Purchased Materials on a/c from Arshad Co. Rs 35,000. Materials issued to production Rs 29,000 & Supplies 5,000
Freight paid in cash for material received Rs 1,000.
Materials returned to the vendor during the month Rs 600.
Payroll for the period was distributed as: direct labour
Rs 38,000, indirect labour balance of payroll. Employee payroll deductions: Income tax 10% & EOBI 1%
Employers contribution: Social security 6% and EOBI 5%.
Depreciation: building Rs 4,000, machinery Rs 6,000
Factory overhead charged at Rs 30 per direct labour hour. Insurance expired Rs 2,000.
Factory overhead charged to production at 2.40 per directlabour hour. 20,000 direct labour hours were used.
Cost of goods manufactured was Rs 89,000.
Goods costing Rs 70,000 were sold on a/c for Rs 120,000.6
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What is Cost Accounting?A systematic, disciplined study to
analyze and ascertain cost ofproduct, service or idea.
Control of cost resulting reductionof cost by identifying theabnormal losses and leakage of
material usage, wastage oflabour time and overhead cost.
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Cost DefinitionCommonly used as an amount
require to buy something or topay for service.
According to cost accounting,cost is defined with reference toclassification, such as by
function, Behavior, Time, attribute& Control etc.
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Cost Classifications
By Nature orFunction
Production
Selling & Distribution
Administration
FinanceByBehaviour
Variable
Fixed
Semi Variable Stepped
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Cost ClassificationsBy Time Period Cost
Product Cost
ByManagement
Controllable Cost
Non-ControllableCost
By AttributeDirect Cost
Indirect Cost
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Cost of Production: Elements
Direct Material = Variable
Direct Labour = Variable
Factory Overhead = Variable
& Fixed
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Direct Material - VariableThe material that forms an integral part of the finished goods and that can
be included directly in calculating the cost of the product .
Raw Material
Raw Cotton
Gypsum Clay
Iron Ore
Wheat
Oil Seed
Bamboo Pulp
Crude Oil
Finished Product
Cotton Bales
Cement
Iron & Steel
Flour
Oil & Ghee
Paper
Petrol, Diesel &
Gasoline
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Direct Material Direct Material Purchased from supplier and
placed to Store (Material Debit & A/Payable Credit)
Defective Material Returns to Supplier
(A/Payable Debit & Material Credit)
Direct Material issued to production( W. I. Process Debit & Material Credit)
Excess Material Returns back to Store from
Production (Material Debit & W.I. Process Credit)
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Direct Material Cost - ComputationRs.
Material Inventory Jan.1 4,000
Material Purchase 86,000
90,000 Material Inventory Jan. 31 6,000
Cost of Material Consumed 84,000
Material Requisition (Evidence)
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Direct Labour - VariableThe Labour is applied directly to the materials comprising the
finished product.
Direct Labour
Machine Operator
Car Driver
Faculty
Telephone Operator
Cashier
Pilot
Advocate
Chemist
Industry
Factory Plant
Rent a Car
University
P.T.C.L.
Bank
Airline
Solicitors firm
Pharmaceutical
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Direct Labour Cost
Labour wage
= No. of Hours worked (x) wage per hour
4,000 Hours (x) 50 =Rs 200,000
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Factory OverheadVariable & Fixed Indirect Labour
Depreciation
Insurance Factory
Repair & Maintenance
Indirect Material - Supplies Fuel
Electric & Power
Telephone
Fixed
Fixed
Fixed
Variable
Variable Variable
Semi Variable
Semi Variable
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Statement of Cost of Goods Manufactured
Cost of Direct Material Consumed
Direct Labour Cost incurred (4000 Hr) Factory Overhead Applied (@ 30)
Total Manufacturing Cost
Work in Process Jan.1
Work in Process Jan.31
Cost of goods manufactured
84,000
200,000120,000
404,000
24,000
428,000
32,000
396,000
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Statement of Cost of Goods Sold Finished Goods Jan. 1
Cost of goods manufactured(As per statement)
Finished Goods Jan. 31
Cost of goods sold
Adjust. of under /over applied FOH
Cost of goods sold (Adjusted)
Rs 60,000
396,000
456,000
50,000
406,000
- Nil -
406,000
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Statement of Comprehensive Income Sales Revenue
Cost of goods sold(As per statement)
Gross Profit
Selling & Distribution Exp.Administrative Exp
Net Income
Rs 650,000
(406,000)
144,000
40,000 50,000
90,000
54,000
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Costing
Documents
Syed Sohail Ahmed M.Com, DAIBP, FCMA,
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Material Control - (Store Department)
Functions: To Raise Material Requirements
Issue Material Purchase Requisition TO Purchase Deptt
To Receive Goods from Suppliers To prepare Goods Received Note
To Place Goods for quick Retrieval Proper management for issuance to production depttr.
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Functions: To Issue Material to Production Deptt
Honor the Material Requisition
Duly Signed by the Authority
To Maintain Record of Material Receipt,
Issue and Balance ( Perpetual InventorySystem) FIFO, LIFO or AVERAGE Method
(BIN CARD)
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Material Control - (Store Department)
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ORDERING COST
Costs relates to Placing order till receipt
of Physical Material,
Salary & allowances etc. of Purchase Deptt. Depreciation - fixed assets Pur. Deptt.
Tel. fax. Telex charges
Advertisement
Stationery AND
FREIGHT24
Material Control - (Store Department)
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CARRYING/ HOLDING COST
Costs relates to Store Department
Salary & allowances etc. of Store Deptt.
Depreciation - fixed assets Store Utilities Charges
Stationery AND
INTEREST ON BANK FINANCE
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Material Control - (Store Department)
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Scrap Material Material Issued to Production
Work in Process (Debit) & Material (Credit)
Material Return back to Store Same Condition
Material (Debit) & Work in Process (Credit)
Material Return back to Store Scrap (Less Value)
Scrap Material (Debit) , F.O.H Loss in value (Debit)
& Work in Process (Credit)
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Spoiled Work Material issued to Production, Labour cost of
production and F.O.Head applied to Production W.I.P. Material (Debit) and Material (Credit)
W.I.P. Labour (Debit) and Payroll (Credit)
W.I.P. FOH (Debit) and FOH Appiied (Credit)
Defective Goods / Work returned back to Store
General Work Loss charged to Production (FOH)
Specific Order Loss charged to Order
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Documents - Materials Material Requision
Prepared by: Production Department
Issued to: Store Department
Purpose: Request for issuance of Mterial
Nature: Internal Document Simple format
Purchase Requisition
Prepared by: Store Department
Issued to: Purchase Department Purpose: Request for Purchase of Material
Nature: Internal Document Simple format
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Documents - Materials Purchase Order
Prepared by: Purchase Department
Issued to: Vendor (Supplier of Goods etc.)
Purpose: Order for purchase of material
Nature: External DocumentFormal Letter Head
Invoice
Prepared by: Vendor
Issued to: Accounts Department Purpose: To demand payment of the material sold
Nature: Standard Format
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Documents - Materials Debit Note
Prepared by: Store Department
Issued to: Vendor
Purpose: To inform about quantity of goods being return
Nature: Formal
Credit Note
Prepared by: Vendor
Issued to: Accounts Department
Purpose: Proof of the goods received and
purchaser will not have to pay for them.
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Documents Labour Cost Payroll Salary sheet
Prepared by: Accounts & HR Department
Base Wage
Payment Period: Attendance (Time In Out)
Overtime: Premium % Downtime: Record from Production deptt.
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Documents Factory Overhead Budgeted Cost Variable & Fixed
Past Record, Forecast for future.
Activities: To be Attended
Cost Incurred Actual
Payment Vouchers Bills etc.
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Costing Systems
Syed Sohail Ahmed M.Com, DAIBP, FCMA,
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Standard Costing
Flour Ghee
Cement
Automobiles
Computer
Toys
Office Furniture
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Cloth Crockery
Electronic Goods
Books etc
School & College Furniture
Readymade Clothing
Electric Fittings etc.
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Job Order Costing
Tailoring
Vehicle Repairing
Specific Furniture Tool Repairing
Special Purpose Vehicle Draper
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Batch Costing
Medicine - Limited LIfe
Paint - Various colours of one product
Newspaper News for Specific Areas
Confectionery - Flavor
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Service Costing Educational Institutions
Auditors
Airlines Shipping Companies
Insurance
Solicitors
Engineering
Consultants
Transportation Hotels
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Contract Costing
Roads
Motorways
Bridge
Plaza
Societies, Housing Schemes
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Managerial Accounting
Syed Sohail Ahmed M.Com, DAIBP, FCMA,
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Managerial Accounting
It refers to the process of
Identifying, Measuring,Analyzing, Interpreting and
communicating information in
pursuit of an organizations goal.
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Management Functions
Planning
Controlling
Organizing
Decision Making
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PlanningA process of making Plan for
future course of action. Examples:
Budgets (Production, Procurement etc.)
Product Pricing
Other Plans
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Which product or services should be sold
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Which product or services should be sold
Where should they be sold
What are the responsibilities of each management
position Who should be hired to fill these positions
How much does it cost to manufactdure a product or
offer a service. What is the most profitable combination of products
or services
What will happen to profit if selling price are
increase or decrease.
How much operating capacity is needed in the form
of people, fund, inventory and fixed assets
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Product: Pricing Model
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Product: Pricing Model Material ( 3 Kg. @ Rs 100 per Kg.) = 300
Labour (4 Hours @ Rs 200 per hr) 800 Factory overhead ( 4 hrs x Rs150*) 600
Total Production Cost 1,700
Selling & Distribution Exp (20%) 340Administrative & General Exp (10%) 170
Finance Cost (15% of Rs 2,210) 332
Total Product Cost 2,542 Profit on Product (20%) 508
Price of the Product (Ex- Sales Tax) 3,050
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C t l
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C o n t r o l
Performance Evaluation is an essentialmanagerial step needed to identify slack
areas and reward for good results.
Controlling with managerial accounting is
defined as the comparison of actual
results with the planned performance(standards) and to take corrective
measures to Guard against recurrence in
future.47
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Develop a Product or Service
Prepare Cost Standard
Material, Labour and Overhead
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O i i
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Organizing
Plans are only piece of papers until theyare implemented.
The Organizing function provides the
structure within which management willwork to implement the plans.
It identifies the work to be performed, the
Persons responsible for the variousactivities and the relationship exists
between the different parts of the entity.
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Directing
Deals with day to day management ofthe entity.
Actions, Decision Making,
Communication and leadership arecombined in the Directing
Functions.
Problems are solved, questions are
answered, disagreements are resolved.
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Decision Making
Management decision making
regardless of the level with in the
organization are the time
dimension involved is concerned
with the selection betweenalternatives.
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Which Product to Produce and to stop
How to Produce them Make or Buy How to Sale them Method feasible
What Prices to charge Refer Market
From where to buy Raw Material Cost
When to Replace Equipment CBA
How to allocate scare resources Max. Whether to expand production capacity
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Make or Buy Decision
Shut down Operation
Price for one off order Special Offer
Product need further Processing
or should be sold now
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Good Luck