Cost Accounting Short notes

Cost and Works Accountants of India Act, 1959, the Institute of Cost and Works Accountants of India (Now called as The Institute of Cost Accountants of India) was established at Kolkata. The profession assumed further importance in 1968 when the Government of India introduced Cost Audit under section 233(B) of the Companies Act, 1956. At present it is under Section 148 of the Companies Act, 2013.

Prime Cost

The aggregate of Direct Material, Direct Labour and Direct Expenses. Generally it constitutes 50% to 80% of the total cost of the product, as such, as it is primary to the cost of the product and called Prime Cost.

Cost Centres are of two types-Personal and Impersonal Cost Centre. A personal cost centre consists of person or group of persons. An impersonal cost centre consists of a location or item of equipment or group of equipments.

Cost Unit is a device for the purpose of breaking up or separating costs into smaller sub divisions attributable to products or services. Cost unit can be defined as a ‘Unit of product or service in relation to which costs are ascertained’. The cost unit is the narrowest possible level of cost object.Sometimes, a single order or contract constitutes a cost unit which is known as a job.

Cost Allocation

When items of cost are identifiable directly with some products or departments such costs are charged to such cost centres. This process is known as cost allocation. Wages paid to workers of service department can be allocated to the particular department.

Cost Apportionment

When items of cost cannot directly charge to or accurately identifiable with any cost centres, they are prorated or distributed amongst the cost centres on some predetermined basis. This method is known as cost apportionment. Thus we see that items of indirect costs residual to the process of cost allocation are covered by cost apportionment.

Cost Absorption

Ultimately the indirect costs or overhead as they are commonly known, will have to be distributed over the final products so that the charge is complete. This process is known as cost absorption.

Relevant Costs: Relevant costs are costs which are relevant for a specific purpose or situation.

Imputed Costs: Imputed costs are hypothetical or notional costs, not involving cash outlay computed only for the purpose of decision making.

Differential Cost is the change in the cost due to change in activity from one level to another.

 

 

 

 

 

Compute the Inventory turnover ratio from the following:

Opening Stock - ` 10,000

Closing Stock - ` 16,000

Material Consumed - ` 78,000

 

The council of the Institute of Cost Accountants of India, has constituted ‘Cost Accounting Standards Board’ (CASB) with the objective of formulating Cost Accounting Standards.

According to the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000, the assessable value of goods used for captive consumption is 115%.

Raw Material Consumed: Opening Stock + Purchases – Closing Stock

Cost Object

Cost object is the technical name for a product or a service, a project, a department or any activity to which a cost relates. Therefore the term cost should always be linked with a cost object to be more meaningful.