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Basics of Cost Accounting - 1: Introduction

Introduction Business needs continuous information regarding costs of business activities to plan accurately for the future, to control business results, and to make a proper appraisal of the performance of persons working in an organisation. The fulfillment of these goals requires details about the costs incurred and benefits (revenue) obtained which are provided by cost accounting and management accounting. Concept of Cost, Costing, Cost Accounting and Cost Accountancy A) Cost: The term cost is understood in a variety of ways. The meaning of cost is different according to different point of view. In ancient period only labour expenses were included in term of cost. However with the development of civilisation, the production methods were changed and material, labour and other expenses are considered in the concept of cost. Cost is the amount of resources spent for manufacturing goods or providing services. Definitions: 1. According to Chartered Institute of Management Accountant

Basics of Cost Accounting - 2: Limitations of Financial Accounting

Limitations of Financial Accounting Financial Accounting is mainly concerned with recording of business transactions. It provide the information to internal and external parties. Managers, departmental heads, management are the examples of internal parties. Investors, shareholders, debtors, government authorities, banks are the examples of external parties. 1. Shows overall performance: Financial accounting presents an overall picture of a company's financial health through financial statements. However, it lacks granularity in detailing specific operational areas or segments of the business, which might be essential for internal decision-making. 2. Historical in nature: Financial accounting records and reports past transactions. It provides information on what has already occurred but may not accurately reflect current market conditions or predict future trends. This historical data may not always be suitable for making forward-looking decisions. 3. No proper pe

Basics of Cost Accounting - 8: Overheads

Overheads Costs may be classified into direct of indirect cost: Direct cost can be conveniently traced into or identified with the product manufactures. Direct costs which are also called “Prime Cost” or “Basic Cost which represent, the cost which can be easily and directly identified with the cost centers or cost units. But indirect cost represents the costs which are not directly identifiable with the cost centers with the cost centers. These indirect cost are called "Overhead Expenses” Meaning: Overheads is the aggregate of indirect material cost, indirect labour cost and indirect expenses which cannot be conveniently identified with and directly allocated to a particular cost center or cost object in an economically feasible way. It is also known as indirect cost or burden or on cost. Overheads = Indirect Material + Indirect Wages + Indirect Expenses. Definition: 1. Certified Institute of Management Accountants, London:

Prof. Pratik Gohil

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