BBA Notes Introduction to Cost and Management Accounting Study Material : Bachelor of Business Administration (BBA) Most Important Topic Cost And Management Accounting we provide Notes and Study Material Question Papers With Sample Model Solved Question Answers in English PDF Download.
BBA Introduction to Cost Accounting Study Material Notes : Absorption costing, batch costing, Contract Costing, Cost, Cost Accountancy, Cost Accounting, Cost Accounting System, Cost Centre, Cost object, Cost systems, Cost unit, Costing, Systems, Direct Costing Financial Accounting, Historical Costing, Management Accounting, Marginal Costing, Operating Costing, Process Costing, Profit Centre, Service costing, specific order Costing, Standard Costing, Uniform Costing Unit Costing and summary of introduction to cost Accounting.
Introduction to Cost Accounting Study Material
List of Topic discussed you can learn in Introduction of Cost Accounting
- Terminology of cost Accounting
- Meaning of Cost unit and Cost Object
- Distinction between Cost Accounting and Financial Accounting
- Distinction between Cost Accounting and Management Accounting
- Need for Cost Accounting System
- Essentials Good Cost Accounting System
- Practical Difficulties in Installation of Costing System
- Categories of Cost Centers
- Types of Costing System
Short note of Introduction to Cost Accounting
It is imperative for business concerns engaged in the provision of various services and production of goods to continuously strive to reduce costs and enhance the quality of their goods or services so that the discerning customers can receive better intrinsic value for money. Since competition , either domestics or global , provides customers with a much wider choice that under condition of monopoly/semi-monopoly , only those entities which enhance customer satisfaction and afford better value to customer can hope to hold on to or increase their market share. The emphasis of industry in general has very rightly turned to reduction in cost while improving internal efficiencies and product quality. This focus has become essential in today’s globally competitive business environment, and particularly in the context of emerging economies, where greater market access is a direct effect of the cost factor. Real cost reduction holds the key to transforming indigenous industry into a global supply hub for its industrial production and services. The industry should adopt strategies to effectively include in cost reduction while at the same time maintaining the level of excellence in the production and services. There has been a misconception for quite sometime that quality and cost or minimize the cost for a given quality. This trade –off itself will have to be sensitized from situation to situation. Strategic cost management has gained utmost importance in view of spiraling costs of inputs that go into manufacturing. This burden of rising costs coupled with the effect of reducing selling prices due to better technology, cut- throat competition etc. are squeezing sales volumes and or profit margins. In the current scenario it becomes difficult in the industry to sustain and survive unless the cost are correctly accounted for, controlled and reduced so as to sustain and remain in the industry. In time of trade depression, the costing information will help the management to know the areas where economies may be sought, wastage to be eliminated and efficiency to be increased. The cost accounting facilitates distinction of costs into fixed costs and variable costs, which can be used to determine the prices in period of trade depression, by selling the product even at price below the total cost. In period of severe competition , the costing information provides sufficient ground in location of inefficiencies , wastage etc. to exercise cost control and cost reduction programmes. This will help in reduction of selling prices to meet trade competition. Simultaneously it helps in survival and growth of the concern even in situations of unfavorable economic conditions.
BBA Study Material to Cost Accounting Introduction to Cost Accounting short notes of Terminology of Cost Accounting
Terminology of Cost Accounting
Cost may be defined as (1) the amount of expenditure (actual or notional) incurred on or attributable to a given thing; or (2) to ascertain the of a given thing. Cost represents the resources that have been or must be sacrificed to attain a particular object. Sacrifice may be direct or indirect. In other words , cost is the amount of expenditure, actual or notional, incurred on or attributable to a given product or services . cost is the amount of resources used for something, which must be able to be measured in terms of money.
Costing may be defined as ‘the techniques and process of ascertaining costs’. Costing involves is classification, recording, allocation, appropriation of expenses incurred to facilitate the determination of cost of the product or service;
Weldon defines ‘costing is the classifying, recording and appropriate allocation of expenditure for the determination of cost of products or services and for the presentation of suitably arranged data for purposes of control and guidance of management. It includes the ascertainment of every order, job, contract, process, service units as may be appropriate. it deals with the cost the cost of production, selling and distribution.
3. Cost Accounting
Chartered institute of management accountants, London(CIMA) defines cost accounting as ‘the establishment of budget , standard costs and actual costs of operations, processes, activities or product; and the analysis of variances, profitability or the social use of funds’’.
Cost accounting primarily deals with collection analysis of relevant cost data for interpretation and presentation for various problems of management . cost accounting accounts for the costs of a product, a services or an operation. It is concerned with actual costs incurred and the estimation of future costs.
4. Cost Accountancy
CIMA defines cost accountancy as ‘the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability as well as presentation of information for the purpose of managerial decision making. Cost accounting is the application of accounting and costing principles, methods and techniques in the ascertainment of costs and the analysis of savings and or excess as compared with previous experience or with standards.
5. Cost Unit
CIMA defines cost unit as ‘ a quantitative unit of product or service in relation to which costs are ascertained’. A cost unit is a unit of product or unit of service to which costs are ascertained by means of allocation, apportionment and absorption. It is a unit of quantity of product, service or time or combination of these in relation to which costs are expressed or ascertained. For example, specific job, contract, unit of product like fabrication job, road construction contract, an automobile truck, a table, 1000 bricks, etc. the relation between cost centre and cost unit is that the costs of a function or activity are classified to cost centre. The cost unit which pass through the cost centre, the direct and indirect costs of the cost centre are charged to the units of production by means of an absorption rate. The unit of output in relation to which cost incurred by a cost centre is expressed is called ‘cost unit’. It is a useful measurement of costs for comparative purposes. Cost unit can be anything for which it is possible to ascertain the cost. The cost unit selected in each situation will depend on a number of factors including the purpose of cost ascertainment exercise and the amount of information available. Cost units can be developed for all kinds of organisations, whether manufacturing, commercial or public utility services. Some of the examples of cost unit are given below:
Industry/Product /Activity Cost Unit
Brick making – 1000 bricks
Automobile – Automobile unit manufactured
Cement – Tonne of cement
Coal – Tonne of coal
Electricity – kilowatt-hour(kwh.)
Professional service – chargeable hour
Education – enrolled student
Spinning – kg. of yarn spun
Textiles – metre of cloth produced
Oil refining – per tonne
Passenger transport – passenger-kilometer
Cargo transport – tonne-kilometer
Toy making – per sip
Ship building – per ship
Gas – cubic feet or cubic metre
Mines – tonne of mineral extracted
Hospital – patient day
Sugar -t onne of sugar manufactured
Credit control – account maintained
Selling – customer call
In case of service organisation composite cost unit is used such as tonne-kilometre , kilowatt-hour , patient day etc. to be more meaningful .
BBA Study Material to Cost Accounting Introduction to Cost Accounting short notes of Cost
Colin Dury defined cost object as ‘any activity for which a separate measurement of costs is desires’. Sometimes the uses of accounting information are interested in knowing cost of something , which is called as ‘cost object; For example , ascertainment of cost of a particular branded product, particular function in production process, particular area of sales, servicing a particular customer, operating a particular account, maintaining a particular item of stoke in stories, manufacturing a particular items of product etc. Cost object requires all costs relating to it to be traced and accumulated.
BBA Study Material to Cost Accounting Introduction to Cost Accounting short notes of Objective of Cost Accounting
Objective of Cost Accounting
The important objective of cost accounting
- To ascertain the cost per unit of production.
- To help in determining the selling price.
- To help in cost control and cost reduction.
- To ascertain the cost and profitability of each division, unit, activity, centre etc.
- To assist the managements in decision making.
- To provide a basis for operating policies.
- To inform about inefficiency and carelessness.
- To inform the real situation of production activity.
- To provide the principles and procedures to be followed in costing system.
- To provide basis for comparative analysis through data collection.
- To facilitate cost estimation.
BBA Study Material to Cost Accounting Introduction to Cost Accounting short notes of Cost Accounting and Financial Accounting
Cost Accounting and Financial Accounting
Accounting Distinguishing Features of Financial Accounting and Cost Accounting are Given below:
- It is an internal reporting system for an organization’s own management for decision making.
- It is more concerns with short – term planning and its reporting period is much lesser than financial accounting.
- It not only deals with historic data but also futuristic in approach.
- Cost accounting system cannot be installed without proper financial accounting system.
- In cost accounting, the major emphasis on functions, activities, products, processes and on internal planning and control and information needs of the organization.
- Each organization can develop a costing system best suited to its individual needs.
- It primarily emphasizes on cost and it deals with collection, analysis, relevance, interpretation and presentation for managerial decision making on various business problem. It is concerned more with the ascertainment, allocation, distribution and accounting aspects of costs.
- It uses with both monetary , as well as non-monetary (quantitative) information.
- It provides a detailed system of cost control with the help of standards and budgets.
- Items of cost are analysed, classified in order to ascertain the cost per unit of product or services.
- It is more attached with reporting the results and position of business to persons and authorities other than management like government, creditor, investor, owner etc.
- The periodicity of reporting in financial accounting is much wider.
- The financial accounting data is historical in nature.
- Financial accounting system can be installed without proper cost accounting system.
- In financial accounting, the major emphasis is in cost classification based on type of transaction e.g. salaries, repairs, insurance, stories etc.
- It classifies an entity’s transactions in money terms, in accordance with established concept, principles, accounting standards and legal requirements.
- It aims to present ‘true and fair view ‘ of overall results of the transactions, and events for the enterprise as a whole. It does note trace the path of the event within the enterprise. The financial statements like profit and loss account, balance sheet and flow statements reveal the overall performance and position of the enterprise.
- Monetary information is only used in financial accounting.
- It emphasizes only on recording of transactions and presentation of data in the form of financial statements. It does not give importance to control aspect.
- The items of cost are expressed in totals.
BBA Study Material to Cost Accounting Introduction to Cost Accounting short notes of Cost Accounting and Management Accounting
Cost Accounting and Management Accounting
The scope of management accounting is broader than the scope of cost accounting. In cost accounting , primary emphasis is on cost and it deals with collection, analysis, relevance, interpretation and presentation for various problems of management. Management accounting utilizes the principles and practices of financial accounting and cost accounting in addition to other modern management techniques for efficient operation of a company. The main thrust in management accounting is towards determining policy and formulating plans to achieve desired objective of management. Management accounting makes corporate planning and strategy effective and meaningful. Both cost accounting and management accounting are internal to the organization. Both have the same objectives of assisting management in its functions of planning, decision making, controlling and techniques like budgetary control, standard costing, marginal costing. There is a good deal of overlapping in the functions of cost accounting and management accounting. However, the two systems can be differentiated on the following grounds :
- It is concerned more with the ascertainment, allocation, distribution and accounting aspects of goods.
- The cost accounting data generally serves as a base to which the tools and techniques of management accounting can be applied to make it more purposeful and management oriented.
- Its scope of cost accounting is narrow than management accounting. A cost accountant can be helpful in collecting costing data for management accountant.
- The primary emphasis of cost accounting is to deal with collection, analysis, relevance, interpretation and presentation for various problems of management
- In organizational set – up, cost accountant is placed at a lower level of hierarchy.
- It does not include financial accounting and has nothing to do with tax accounting.
- It is more concerned with short – term planning.
- It is concerned merely with assisting in management function and performance of management.
- It is mostly historical in its approach and it projects the past.
- Cost and accounting system can be installed without management accounting.
- It is concerned with money as a measure of economic performance.
- It is basically concerned with collection, classification and analysis of cost data.
- Cost accounting system is generally kept voluntary, but at present is has been obligatory to keep cost accounting records in certain selected industries.
- It is concerned more with impact and effect aspects of costs.
- The management accounting data is derived, both from the cost accounts and financial accounts.
- The scope of management accounting is broader than cost accounting. The management accountant places the data in a wider perspective than the cost accountant. The management accountant is supposed to have a clear idea regarding the items and type of costs required to analyse and decide specific business problems and effect of such costs on alternative solution.
- The main thrust in management accounting is towards determining policy and formulating plans to achieve deserved objective of management. Management accounting makes corporate planning and strategy effective and meaningful.
- Management accounting is generally placed at a higher level of hierarchy than the cost accountant.
- It includes both financial accounting as well as cost accounting. It also embraces tax planning and tax accounting.
- It concerned equally with short – range and long – range planning and uses highly sophisticated techniques, like sensitivity analysis, probability structure etc. in planning and forecasting process. Evaluation of capital investment projects is the specialty of management accountant.
- It is concerned both with assisting management in its functions, as well as evaluating the performance of the management as an institution.
- It is futuristic in its approach and predictive in nature.
- Management accounting system cannot be installed without proper cost accounting system.
- It looks at all situations including non – monetary economic events from a management view point.
- It directs its attention to various divisions, departments of the business and report about profitability, performance etc. of each of them.
- The business concern is free to install management system.