cost and management accounting (2015 16) unit 1

Cost and Management Accounting

S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: [email protected]

UNIT – I COST AND MANAGEMENT ACCOUNTING

Meaning – Definition – Scope – Objectives – Function – Merits and Demerits of Cost

and Management Accounting – Distinction between Cost, Management and Financial

Accounting – Elements of Cost – Cost Concepts and Cost Classification.

MEANING – DEFINITION – SCOPE – OBJECTIVES – FUNCTION – MERITS AND

DEMERITS OF COST AND MANAGEMENT ACCOUNTING Meaning and Definition of Cost Accounting

Cost Accounting is the process of accounting for cost which begins with the

incurrence of cost and ends with the control of cost. In other words, it is a formal

system of accounting by means of which costs of products, services or activities are as

ascertained and controlled.

According to ICMA, London, “Cost Accounting is the process of accounting for cost

which begins with the recording of income and expenditure and ends with the

preparation of periodical statements and reports for ascertaining and controlling

costs”.

According to L.C.Cropper, “Cost Accounting means a specialized application of the

general principles of accounting in order to ascertain the cost of producing and

marketing any unit of manufacture”.

Scope of Cost Accounting

1) Cost Ascertainment: It deals with the collection and analysis of expenses, the

measurement of production of the different products at the different stages of

manufacture and the linking up of production with the expenses. The varying

procedures for the collection of expenses give rise to the different systems of

costing as Historical or Actual cost, Estimated costs, Standard costs, etc.

2) Cost Accounting: It is the process of accounting for cost which begins with

recording or expenditure and ends with the preparation of statistical data. It is

formal mechanism by means of which costs of products or services are

ascertained and controlled. Cost can be ascertained either by following the

historical or predetermined system of costing. Cost can be predetermined either

by standard costing or estimated costing.

3) Cost Control: Cost control is the guidance and regulation by executive action of

the costs of operating an undertaking. The cost can be controlled by standard

costing, budgetary control, proper presentation and reporting of cost data and

cost audit.

Principles of Cost Accounting

Cost is related to its Cause

Cost is charged after it is incurred

Abnormal costs are excluded from costing

Past costs are not charged to future period

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Concept of conservation has no place in costing

Accounting for cost is based on double-entry principle

Objectives of Cost Accounting

(a) Analysis and Ascertainment of Costs: For the ascertainment of cost it involves

further study, analysis and classification of costs such as prime cost, work cost,

production cost, etc.

(b) Cost Control: Budgets and standards for the consumption of materials, use of

labor, and for expending the overhead are to be set and compared with the

actual performance.

(c) Ascertainment of Profitability: It is the objective of cost accounting to ascertain

the profitability of the activities carried out or planned.

(d) Determination of Selling Price: Cost accounting provides detailed information

about the composition of total cost plus a margin of profit for the determination

of the selling price.

(e) Providing a Basis for Business Policy: The objective of cost accounting is to help

the management in the formulation of business policy and in decision making.

Functions of Cost Accounting

To set-up and revise standards: Standards, i.e. indices of efficiency are fixed are

revised in the light of data provided by cost accounting.

To compare performance with standards: Cost accounting provides data on the

basis of which performance of various divisions and departments can be

compared and management can take-up remedial action to control costs.

To serve as a Tool for Planning and Budgeting: Costing accounting performs the

basic function of acting as a tool for managerial planning and budgeting. It

provides data to make projections of future cost and product lines to be taken-

up.

To serve as an Index for Managerial Performance: Cost accounting performs the

function of providing an index of managerial performance in different sections,

departments, divisions, etc.

To Protect Interest of Investors: It compels the manager to prove their efficiency

which increases the profitability of organization. The shareholders can expect

better returns and better security of their investment.

To Report to the Government: Cost accounting performs the function of

providing government with relevant data which are helpful in framing

budgetary policies, taxation policies, etc.

Advantages of Cost Accounting

Cost accounting as an aid to management

Advantage to employee

Advantage to creditors, investors and bankers

Advantage to government and the society

Disadvantages of Cost Accounting

o There is an argument that it is unnecessary




o It is expensive

o It is inapplicable to some systems

Meaning and Definition of Management Accounting

Management Accounting is compared of two words „Management‟ and „Accounting‟.

It is the study of managerial aspect of accounting. The emphasis of management

accounting is to redesign accounting in such a way that it is helpful to the

management in formation of policy, control of execution and appreciation of

effectiveness. It is that system of accounting which helps management in carrying out

its functions more efficiently.

According to the Institute of Chartered Accountants of India, “Such of its techniques

and procedures by which accounting mainly seeks to aid the management collectively

have come to be known as management accounting”.

According to Brown and Howard, “The essential aim of management accounting

should be to assist management in decision making and control”.

Characteristics of Management Accounting

a) Providing Accounting Information: Collection and classification of data is the

primary function of accounting department. The information so collected is

used by the management for taking policy decisions:.

b) Cause and Effect Analysis: The figures of profits are compared to sales, different

expenditures, current assets, interest payables, share capital, etc.

c) Use of Special Techniques and Concepts: The techniques used include financial

planning and analysis, standard costing, budgetary control, marginal costing,

etc.

d) Taking Important Decisions: It supplies necessary information to the

management, which may base its decisions on it.

e) Achieving of Objectives: The accounting information helps in achieving

organizational objectives. Historical data is used for formulating plans and

setting up objectives.

f) No Fixed Norms Followed: No specific rules are followed in management

accounting. But in financial accounting certain rules are followed for different

accounting books.

g) Concern with Forecasting: The management accounting is concerned with the

future. It helps the management in planning and forecasting.

Scope of Management Accounting

Management accounting covers not only the use of financial data and a part of costing

theory but may extend beyond the boundaries of accounting and costing. It requires

the aid of techniques of other disciplines such as economics, finance, mathematics,

statistics and operations research.




In management accounting one has to study the following:

Financial Accounting: Financial accounting deals with the historical data. The

recorded facts about an organization are useful for future course of action.

Cost Accounting: Cost Accounting provides various techniques for determining

cost of manufacturing products or services.

Budgeting and Forecasting: Budgeting means expressing the plans policies and

goals of the enterprise for a definite period in future.

Inventory Control: Inventory has a special significance in accounting for

determining correct income in a given period.

Reporting Management: The reports are presented in form of graphs diagrams,

index numbers so as to keep the management informed of various actions.

Interpretation of Data: The management accountant interprets various financial

statements to the management.

Internal Audit: The actual performance of every department and individual is

compared with predetermined standards.

Tax Accounting: Income statements are prepared and tax liabilities are

calculated. The management is informed about the tax burden.

Objective of Management Accounting

1. Measuring Performance: There are two types of performance that are typically

measured. The first is employee performance. The second performance

measurement is the measurement of efficiency, how the resources are used.

2. Assessing Risks: Risks are an integral part of business. An objective of

management accounting is to assess risk in order to maximize profits.

Generally, if high risk is undertaken there is a equal chance of getting more

profit or more loss and vice-versa.

3. Allocating Resources: Resource allocation is important to any organization.

Management accountant will determine the most efficient way to divide

resources and maximize profits.

Principles of Management Accounting

Consistency

Consider all possible losses

Consider only normal costs

Convention of the objectivity

Controllable and uncontrollable costs

Optimum utilization of resources

Revaluation accounting

Functions of Management Accounting

Planning and Forecasting

Modification of Data

Financial Analysis and interpretation

Facilitates Managerial Control

Communicating Accounting Information

Supplying Financial Information to Various Levels of Management




Merits /Advantages of Management Accounting

Increasing Efficiency

Proper Planning

Measurement of Performance

Maximizing Profitability

Improve Service to Customers

Effective Management Control

Demerits /Disadvantages of Management Accounting

o Based on Accounting Information

o Lack of knowledge

o Top Heavy Structure

o Evolutionary Stage

DISTINCTION BETWEEN COST, MANAGEMENT AND

FINANCIAL ACCOUNTING

Point of

Difference Cost Accounting

Management Accounting

Financial Accounting

Orientation

Cost accounting is also concerned with money as a measure of economic performance.

Management accounting is concerned with all situations including monetary and non-monetary events.

Financial accounting is concerned with money as the economic resources, i.e. cash.

Scope

Costing accounting aims at measuring the economic performance of the cost centers and provides suitable cost data to measure the performance.

Management accounting is a way of accounting information system which covers financial and cost accounting, and all aspects of financial management

Under Financial accounting the financial aspect of the firm is dealt with by way of preparing Trading A/c, Profit and Loss A/c, and Balance sheet.

Analysis of Performance

Cost accounting is basically concerned with collection, classification and analysis of cost data.

Management accounting can be applied for the making the cost accounting more purposeful and management oriented.

Financial accounting indicates the position of the business as a whole in the final accounts prepared for the purpose of reporting and overall business performance.

Time Factor Cost accounting also focuses attention on past and current operation.

Management accounting concentrates on future operations, &profitability.

Financial account focuses attention of past and current operations.

Legal Compulsion

Cost records are maintained voluntarily in order to meet the requirement of the management. But now Company’s Act, 1956 has made it obligatory to keep the cost records in some manufacturing industries.

There is no legal compulsion as such in respect of management accounting system and hence a company may keep the system management accounting voluntarily to assist the management functions.

Financial accounting became compulsory for every company on account of legal provision.




Difference between Cost Accounting and Financial Accounting

Point of Difference

Cost Accounting Financial Accounting

Purpose

Provides information for guidance of the management for proper planning, operation, control and decision-making.

Provides information about the enterprise in the form of Trading A/c, Profit & Loss A/c, and Balance sheet

Requirements These accounts are generally kept voluntarily to meet the requirement of the management.

These accounts are kept in such a way as to meet the requirements of Companies Act and Income Tax Act.

Recording

It consists of classification, recording and analysis of transaction in a subjective manner, i.e. according to expenditure.

It consists of classification, recording and analysis of transaction in an objective manner, i.e. according to the purpose for which costs are incurred.

Analysis of Profit

Here all the expenses are analyzed, classified, appointed and allocated in order to calculate unit-wise cost, etc.

Here items of cost are usually expressed in total and generally no unit-wise analysis is done. It reveals the profit of the business.

Control It makes effective control with the standard costing and budgetary control.

It only records the information. No effort is made in respect of any control.

Periodicity Reporting

It involves a continuous process. It must ensure a flow of cost data at regular interval.

Usually a year – at the end of the accounting year.

Relationship between Cost Accounting and Management Accounting

The purpose of cost accounting is not mere recording and cost-finding but an

effective instrument for managerial control.

Management accounting is accounting designed to give utmost assistance to

management in formulating policies and controlling their current business

operations.

The objectives of cost accounting are similar to those of management

accounting that employs all techniques of cost accounting, such as standard

costing, budgetary control, marginal costing, etc.

Management accounting utilizes the principles and practice of both cost

accounting and financial accounting in the best interest of the business.

Relationship between Financial Accounting and Management Accounting

Financial accounting is concerned with the recording of day-to-day transactions

of the business. These transactions are classified according to their nature.

Management accounting uses financial accounts and taps other sources of

information too. These accounts are used to management in planning and

forecasting various policies.




ELEMENTS OF COST

Meaning of Cost: Costs that are usually considered an expense of the current period

may not be recorded as such because of special circumstances. Cost is the total spent

for goods or services including money, time and labor. Cost is the value of money that

has been used up to produce something, and hence is not available for use anymore.

Cost: It is the amount of resources given up in exchange for some goods or services.

The resources given up are expressed in monetary terms. In business, the cost may be

one of acquisition, in which case the amount of money expended to acquire it is

counted as cost. In this case, money is the input that is gone in order to acquire the

thing.

According to ICMA London, “Cost is the amount of expenditure (actual or notional)

incurred on, or attributable to, a specified thing or activity or cost unit”.

Expenses: Expenses are costs which have been applied against revenue of particular

accounting period in accordance with the principle of matching cost to revenue e.g.

cost goods-sold, office salaries of the period in which they are incurred.

Elements of Cost

Mere knowledge of total cost cannot satisfy the needs of management. For proper

control and managerial decisions, management is to be provided with necessary data

to analyze and classify costs. For its purpose, the total cost is analyzed by elements of

cost i.e. by the nature of expenses. Strictly speaking and the broad elements of cost

are three i.e. Materials, Labor and Other expenses.

These elements of cost are further analyzed into different elements as follows:

Elements of Cost

Materials Labor Other Expenses

Direct Indirect Direct Indirect Direct Indirect

Overheads

Production or Administration Selling Distribution

Works Overheads Overheads Overheads Overheads




All costs related to production of goods are called manufacturing costs; they are also

referred to as product costs. The following are the classification of costs associated

with manufacturing.

(1) Direct Materials: Direct materials are those materials which can be identified in

the product and can be conveniently measured and directly charged to the

product. These materials directly enter the production and form a part of the

finished goods.

Indirect Material: The materials which are not classified as direct materials are

called indirect materials. These materials are used for purposes ancillary to the

business and which cannot be conveniently assigned to specific physical units

is termed as “Indirect Material”. Indirect material may be used in the factory,

office or selling and distribution divisions. Consumable stores, oil and waste,

printing and stationery material, etc. are few examples of indirect materials.

(2) Direct Labor: Human effort is needed for conversion of materials into finished

goods; such human effort is called labor. In simple words, it is that labor

which can be conveniently identified or attributed wholly to a particular job,

product or process or expended in converting raw materials into finished

goods. Wages of such labor are known as direct wages.

Indirect Labor: Labor employed for the purpose of carrying out tasks incidental

to goods produced or services provided, is indirect labor. Wages of store-

keepers, foremen, time-keepers, director‟s fees, salaries of salesmen, etc. are

the examples of indirect labor costs. Indirect labor may relate to the factory,

office or selling and distribution divisions.

(3) Direct Expenses: All expenses which can be identified to a particular cost

centre and hence directly charged to the centre are known as direct expenses. In

other words, all expenses incurred specifically for a particular product, job are

called direct expenses. These are directly charged to the product. For

example, royalty, excise duty, hire charges of a specific plant and equipment

etc.

Indirect Expenses: These are expenses which cannot be directly, conveniently

and wholly allocated to cost centres or cost units. Examples of such expenses

are rent, lighting, insurance charges, etc.

(4) Overheads: Overheads may be defined as the aggregate of the cost of indirect

materials, indirect labor and such other expenses including services as cannot

conveniently be charged direct to specific cost units. Thus overheads are all

expenses other than direct expenses. The main groups into which overheads

may be sub-divided are (i) Manufacturing Overheads, (ii) Administration

Overheads, (iii) Selling and Distribution Overheads and (iv) Research and

Development Overheads.




By grouping the elements of cost, the following divisions of cost are obtained:

Direct material + Direct labor + Direct expenses = Prime cost

Prime cost + Factory overheads = Factory cost

Factory cost + Administrative overheads = Production cost

Production cost + Selling & Distribution overheads = Total cost (or)

Ultimate cost

COST CONCEPTS AND COST CLASSIFICATION

A cost accountant is mainly concerned with the following cost concepts:

Concept of Objectivity: It is this concept gives direction to the activities relating

to cost finding, cost analysis, recording and cost reporting. This concept

necessitates goal congruence, i.e. cost exercises have to be in harmony with

objectives.

Concept of Materiality: This concept that stress accuracy must be tempered by

good judgment, if no distortion of product cost is likely to result. Materiality is

determined with reference to nature of company‟s activities, managerial

policies and competitors‟ practices.

Concept of Time Span: All assumptions relating to different cost exercise remain

valid only during related time span. The statement that cost is fixed is based on

a time span under consideration. No costs will remain fixed for all the time.

Concept of Relevant Range of Activity: Relevant range of activity represents the

span of volume over which the cost behavior is expected to remain valid. A

fixed cost is fixed only in relation to the relevant range of activity during the

period. The relevant range of activity may be different between firms and for

individual firm also, it may change from time to time.

Concept of Relevant Cost and Benefit: This concept is vital for decision-making

purposes. In evaluating alternative course of action, management should

consider only relevant cost and relevant benefit relating to alternatives under

consideration. Irrelevant cost and benefits, i.e. costs and benefits which are not

affected by decision under consideration are ignored.

Objectives of Cost Accounting

The main objectives of cost accounting can be summarized as follows:

To determining selling price

To determining and controlling efficiency

To facilitating preparation of financial and other statements

To Providing basis for operating policy Costs Classification

The cost-classification is the process of grouping costs according to their

characteristics. The cost can be classified into the following:




According to Elements: The cost is classified into (a) Direct cost, (b) Indirect

cost according to elements, viz. materials, labor and expenses. Further it is

classified as direct material and indirect material, direct labor and indirect

labor, direct expenses and indirect expenses.

According to Functions or Operations: According to this classification, costs are

classified under the following functions:

Production Cost: It includes the cost of direct material, direct labor,

direct expenses and factory overheads.

Administration Cost: The cost of formulating policy, directing the

organization and controlling the operations of an undertaking which is

not related directly to a product or a service constitute administration

costs.

Selling Cost: these are costs of seeking to create and stimulate demand

and the cost of securing orders.

Distribution Cost: The cost of sequence of operations which begin with

making the product available for dispatch and ends with making the

reconditioned returned empty package.

Research Cost: The costs of searching – new or improved products, new

application of materials, new or improved methods are called research

costs.

Development Cost: These are costs of the process which begins with the

implementation of the decision to produce a new or improved product.

Pre-Production Cost: These are those costs which are incurred on making

a trial production run prior to formal production.

According to Nature or Behavior: On the basis of behavior costs may be

classified as:

(i) Variable Cost: Costs that vary almost in direct proportion to the volume

of production are called variable costs. The examples of such costs are

direct material, direct labor and direct chargeable expenses, such as

electric power, fuel, etc.

(ii) Fixed Cost: Costs which do not vary with the level of production are

known as fixed costs. These costs remain constant irrespective of the

level of output. Fixed costs remain fixed up to a certain level of

production.

Fixed costs can be further classified into: (a) Committed Fixed Costs –

Plant, building and equipment (depreciation, rent, taxes, insurance

premium, etc.) are examples; (b) Discretionary Fixed Costs –

Advertising, public relations, training, teaching, research, heath care etc.

are examples.

(iii) Semi-Variable Cost: Those costs which are partly fixed and partly

variable are called semi-variable costs. These costs vary with the level

of production but not in direct proportion to the level of production.




According to Controllability: On the basis of controllability costs may be

classified as under:

a) Controllable Cost: This is a cost which can be influenced by the action of

specified member of an undertaking. The costs which can be controlled

by a specified member who is generally an important link in the

management are the controllable costs.

b) Uncontrollable Cost: It is a cost which cannot be influenced by the action

of a specified member of an undertaking. Uncontrollable cost generally

the fixed costs, the control of which does not lie within the province of a

member of the undertaking.

According to Normality: Under this category costs may be categorized as

follows:

i. Normal Cost: It is the cost which is normally incurred at a given level of

output in the conditions in which that level of output is normally

attained. It is charged to costing profit and loss account.

ii. Abnormal Cost: It is the cost which is not normally incurred at a given

level of output in the conditions in which that level output is normally

attained. It is charged to costing profit and loss account.

According to Time of Periodicity: Under this category costs may be divided as

follows:

a) Historical Cost: The historical cost is the actual cost, determined after the

event. Historical cost valuation states costs of plant and material, for

example, at the price originally paid for them.

b) Future Cost: The future costs are costs expected to be incurred at a later

date. Future costs are relevant for managerial decision making in cost

control, profit projections, expansion programs and pricing, etc.

According to Association with Product: Under this category costs may be

classified into product cost and period cost as follows:

i. Product Cost: Product costs are those costs which are associated with and

directly identifiable with the product. In other words, costs which are

assigned to the product are product costs.

ii. Period Cost: Period costs are costs that are reported as expenses of the

period in question. These are costs which are not assigned to the product

but are charged against revenue costs of the period in which they are

incurred. All non-manufacturing costs such as general and administration

expenses, selling and distribution expenses are example of period costs.

According to Relevance to Decision-making and Control: Under this category

costs may be classified as follows:

1. Marginal Cost: It is a variable cost of one unit of a product or a service i.e. a

cost which would be avoided if that unit was not produced or provided.




2. Differential Cost: A difference in cost between one course of action and

another is differential cost. This is to compare the cost for decision-making.

If a decision results in an increased cost, it is incremental cost. If the cost is

decreased, it is referred to as a decremented cost.

3. Joint Cost: Whenever two or more products are produced out of the same

basic raw material or process, the cost of material purchased and processing

are called joint costs. Such costs have to be apportioned to various products

on some basis.

4. Shut-down Cost: A cost will still be required to be incurred even though a

plant is closed or shut-down for a temporary period. For example, the cost

of rent, rates, depreciation, maintenance expenses etc. are shut-down costs.

5. Sunk Cost:A cost which has been incurred in the past or sunk in the past and

is not relevant to the particular decision-making, is a sunk cost. If it is

decided to replace the existing plant, the written down book value of the

plant less the sale value of the existing plant, is a sunk or irrevocable cost.

6. Opportunity Cost: According to CIMA, “Opportunity cost is the value of a

benefit sacrificed in favor of an alternative course of action”.

7. Imputed Cost: It is hypothetical cost required to be considered to make costs

comparable. If the owner of the factory charges rent of the factory to the

cost of production to make cost comparable with that of those undertakings

which run production in rented factories, it is an imputed cost as the rent

has actually not been paid. Same is the case with charging interest on one‟s

own capital.

8. Out-of-pocket Cost: It is the cost which involves current or future

expenditure based on managerial decisions. For example, a company has its

own trucks for transporting goods from one place to another. It seeks to

replace these by employing pubic carrier of goods. While making this

decision management can ignore depreciation, but not the out-of-pocket

costs in the present situation, i.e. fuel, salary to drivers and maintenance

paid in cash.

9. Replacement Cost: It is the cost of replacing a material or asset by purchase

from the current market. For example, if an „x‟ material was originally

purchased @ Rs.250 per kg and now it can be replaced by purchase from

the market at the current rate of Rs.280 per kg, the replacement cost is

Rs.280 per kg.

10. Programmed Cost: The programmed cost is a cost that is subject to both

management discretion and control but which has little immediate relevance

to current operations although it is generally incurred to ensure long-term

survival. Advertisement, research and development, are examples of

programmed cost.

Costing Methods and Techniques

Cost accounting is a process of ascertaining or estimating cost. Hence it consists of a

body of methods and techniques by which cost of products and services are

determined are presented. These could be regarded as the tools of cost accountants.




Methods of Costing

The method of costing to be applied in a particular concern depends upon the type and

nature of manufacturing activity. Basically there are two methods of costing:

(i) Specific order costing and (ii) Non-specific order costing

Specific Order Costing: It includes:

1. Job Order Costing: This method applies where work is undertaken to customers‟

special requirements. Cost unit in job order costing is taken to be job or work

order for which costs are separately collected and completed.

2. Contract Costing (or) Terminal Costing: This is a variation of job costing and

therefore, principles of job costing apply to this method. The difference

between job and contract is that job is small and contract is big. Contract

costing is most suited to construction of buildings, dams, bridges, etc.

3. Batch Costing: In this method the cost of a batch or group of identical products

is ascertained and therefore, each batch of products is a cost unit for which cost

is ascertained. Readymade garments, toys, shoes, etc. are the examples of this

type of costing.

Non-Specific Order Costing: It includes:

1. Process Costing: As distinct from job costing this method is used in mass

production industries manufacturing standardized product in continuous

process of manufacturing. Costs are accumulated for each process or

department. Textile Mills, Chemical works, Sugar Mills, Refineries, Soap

manufacturing industries which employ this method.

2. Operation Costing: A process may consist of a number of operations and

operating costing involves cost ascertainment for each operation instead of a

process. This method provides minute analysis of costs and ensures greater

accuracy and better control.

3. Single, Output (or) Unit Costing: This method of cost ascertainment is used

when production is uniform and consists of a single or two or three varieties of

the same product. Where the product is produced in different grades, costs are

ascertained grade-wise. This method is applied in mines, quarries, brick kilns,

flour mills, etc.

4. Operating (or) Service Costing: This method should not be confused with

operation costing. It is used in undertakings which provide services instead of

manufacturing products. For example, transport undertakings, electricity

companies, hotels, hospitals, cinemas, etc. use this method.

Techniques of Costing

1. Standard Costing: Standard cost is the pre-determined cost as target of

performance, and actual performance is measured against the standard. The

differences between standard and actual costs are analyzed to know the reasons

for difference so that corrective actions may be taken.

2. Budgetary Control: A budget is an expression of a firm‟s business plan in

financial form and budgetary control is a technique applied to the control of




total expenditure on materials, wages and overheads by comparing actual

performance with planned performance. The budget is also used for control and

coordination of business.

3. Marginal Costing: Marginal cost regards only variable costs as the cost of the

products. Fixed cost is treated as period cost and it is transferred to costing

profit and loss account of the period. This technique is used to study the effect

on profit of changes in volume or type of output.

4. Total Absorption Costing: It is a traditional method of costing whereby total

costs (fixed and variable) are charged to products. This is complete contrast to

marginal costing where only variable costs are charged to products.

5. Uniform Costing: This is not a separate technique or method of costing like

standard costing or process costing. It simply denotes a situation in which a

number of firms adopt a uniform set of costing principles.

Text Books & References

1. S.P.Jain and K.L.Narang, “Cost Accounting”, Kalyani Publishers,

New Delhi, 8th

Edition, 2014.

2. R.S.N.Pillai and V.Bagavathi, “Cost Accounting”, S.Chand and Company Ltd.,,

New Delhi, Edition, 2004.

REFERENCE BOOKS:

1. Jain and Narang – Costing 2. Nigam and Sharma – Cost Accounting 3. R.K.Sharma & K.Gupta – Management Accounting 4. S.N.Maheswari – Management Accounting


cost and management accounting (2015 16) unit 1

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