cost terms dated 18 nov

7/31/2019 Cost Terms Dated 18 Nov

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Cost ConceptsCost Concep

ts

By;By;

P.K.GargP.K.Garg

DGM (NESCL)DGM (NESCL)


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Accounting?Accounting?

Financial accounting

Cost accounting

Management accounting


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What is Cost?What is Cost?

Resources sacrificed to achieve some

objective (cost object )

Two basic stages

Cost accumulation

Cost assignment to cost objects.


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Cost Concepts and TermsCost Concep

ts and Terms

Direct and Indirect cost

Traceable , Convenience

Helps in preparing cost sheet and analyzing

the cost structure of a product or service.

Fixed , variable and semi variable Cost

Behaviour of costs in terms of variability with

volume

Useful in decision making, marginal costing,

B.E and budgeting etc


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ts and Terms Controllable and Non-controllable costs

Level of authority , within time period,discretion , manager identifiable -

responsibility accounting system.

Standard, budgeted and actual costs

Standard costs are what costs should be

Budgeted costs are what costs would be

Actual costs are what costs are or what

cost has been Helps in cost and budgetary control


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ts and Terms

Opportunity costs

benefit foregone on the immediate next bestalternative

Notional cost ,provide a comparison to decision

maker at the time of decision. Book cost and out of pocket cost

Book costs do not involve cash outflow-- like

depreciation.

Out of pocket costs involve cash out flow --R

Mat.

Helps in preparing cash flow statement and in

cash planning


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Cost Concepts and TermsCost Concepts and Terms

Marginal, Incremental and differential

Costs

No difference

Allocated and apportioned Costs

Allocated costs can be traced

Apportioned costs cannot be directly traced

are also called common costs .


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Cost Concepts and TermsCost Concepts and Terms

Sunk Costs

Sunk Costs are not relevant for decision

making.A cost become sunk if the purpose for which

the cost is to be incurred, is not be served and

cost incurred is irrecoverable Joint and By product costs

Split off point


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What is the difference between

Cost control and Cost reduction?


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Value Chain of

Business Functions

Marketing

Production

Distribution

Customer

Service

Design of

Processes

Research &

Development

Design of

Products/

Services


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VALUE ADDITION BY THE COMPANY

Physical

Assets

Human

Assets

Monetary

Assets

Systems

Procedures

Information

Systems

Purchase

Price of

Bought out

ComponentsProcessing

Sale Price

of Finished

Products

Customer

Supplier


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Strategic Cost Management

Information System

Cost Accounting Cost Management Strategic Cost Management

Process

Control

Inventory

ValuationAd Hoc

Issues Techniques Tools

Financial

StatementsInventoryCost of

Sales

Attention

DirectingVariancesFeedbackInternal

Reports

ScorekeepingProfitabilityBudgetsMake/BuyDecisionsInternal

Reports

Bench MarkingTotal Quality ManagementActivity Based CostingActivity Based Management

Re-engineeringTheory of ConstraintsMass CustomizationTarget CostingLife-Cycle CostingBalanced Score Card

Cost LeadershipDifferentiationFocus

OUTPUT

OBJECTIVES

FUNCTIONS


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Cost Based Information

Cost accounting system accumulates cost datafor use in both managerial and financialaccounting for example production cost datais used both for setting prices (managerial )

and to value inventory ( financial ).Cost accounting data could be looked at from

the perspective of decision making as :

by nature: direct and indirect

by function: finance or marketing

by behavior: fixed andvariable


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cost terms dated 18 nov

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