Prof. Pratik Gohil

 Allocation, Apportionment and Reapportionment of Overheads           The objective of Cost Accounting is classifying costs and recording an appropriate allocation of expenditure for the determination of the costs of products or services, and for the presentation of suitably arranged data for the purpose of control and guidance of management A) Allocation of Overheads When items of cost are identifiable directly with some products or departments such costs are charged to cost centres. This process is known as cost allocation. It is the charging of discrete, identifiable items of cost to cost centres or cost units.  It is complete distribution of an item of overhead to the departments or products on logical or equitable basis is called allocation.  Where a cost can be clearly identified with a cost centre or cost unit, then it can be allocated to that particular cost centre or unit.  Allocation is the process by which cost items are charg...

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 Wa...

Cost Unit and Cost Centre A) Cost Unit:            The cost unit is defined as the unit of product, service, time, activity, or combination in relation to which cost is estimated. At the time of preparing the cost statements and accounts, a particular unit is required to be selected. It helps to identify the cost accurately and allocate the various expenses. It assists the cost measurement process of the company and promotes comparison. Cost Unit Example- The cost unit of the hotel industry is a room and the cost unit of the steel industry would be a ton. This is preceded by the cost centre.  There are both simple units and complex units in cost units.  1. Simple/Single Cost Unit: A simple unit represents a single standard measurement like per kilogram, per piece, per metre, etc.  2. Composite/Complex Cost Unit: Complex unit uses a combination of two simple units like per kilowatt-hour, per tonne-kilometre, etc.  Characteristics ...

Limitations of Cost Accounting 1. Expensive: Implementing a cost accounting system can be costly due to the requirement of specialized software, skilled personnel, training, and infrastructure. For smaller businesses, these costs might outweigh the benefits.   2. More Complex: Cost accounting involves complex methodologies, especially when dealing with multiple products, departments, or processes. This complexity can make it challenging to implement and comprehend.   3. Limited Applicability: The principles and techniques of cost accounting may not be universally applicable to all industries or sectors. Some industries might find certain methods or concepts less relevant or challenging to implement effectively.   4. Not Applicable to Small Concerns: Small businesses with limited resources might find it impractical to implement elaborate cost accounting systems due to their scale of operations, making it less suitable or beneficial for them.   5. Lack of Uniformit...

Advantages of Cost Accounting A) Advantages to the Management: 1. Helps in Decision Making: Cost accounting provides valuable data and insights necessary for informed decision-making related to production, pricing, resource allocation, and investment decisions. 2. Supplies Detailed Cost Information: It offers detailed information about various costs involved in production, helping managers understand cost structures and make strategic decisions accordingly. 3. Guides in Price Fixation: By analyzing costs, cost accounting assists in setting competitive and profitable prices for products or services. 4. Reveals Operating Efficiency: It helps in assessing and improving operational efficiency by comparing actual performance against standards or benchmarks. 5. Facilitates Planning: Cost accounting aids in effective planning by providing information about costs, enabling the formulation of realistic budgets and plans....

Difference between Financial Accounting & Cost Accounting BASIS FOR COMPARISON COST ACCOUNTING FINANCIAL ACCOUNTING Meaning Cost Accounting is an accounting system, through which an organization keeps the track of various costs incurred in the business in production activities. Financial Accounting is an accounting system that captures the records of financial information about the business to show the correct financial position of the company at a particular date. Information type Records the information related to material, labor and overhead, which are used in the production process. Records the information which are in monetary terms. Which type of cost is used for recording? Both historical and pre-determined cost Only historical cost. Users Information provided by the cost accounting is used only by t...