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BBA Study Material to Cost Accounting notes Cost Concepts For Decision Making

BBA Study Material to Cost Accounting notes Cost Concepts For Decision Making : BBA Cost Accounting Notes Study Material With Questions Answers Sample Model Papers in English PDF Download.

BBA Study Material to Cost Accounting notes Cost Concepts For Decision Making
BBA Study Material to Cost Accounting notes Cost Concepts For Decision Making

Bba Study Material to Cost Accounting notes Cost Concepts For Decision Making: – After Studying This Post, You are able to Understand concept for Decision making Topic are as follows, Abandonment cost, Abnormal Cost, Administration Cost, Avoidable Cost, Batch Cost, Capacity Cost, Coefficient of Determination, (Bba study material learn in English), Committed Cost, Common Cost, Contract Cost, Controllable Cost, Correlation coefficient, Cost Behavior, Cost Classification, Cost Codification, (BBA Study Material) Development Cost, Differential cost, Direct Cost, Discretionary Cost, Distribution Cost, Engineered Cost, Estimated Cost, Explicit Cost, Fixed Cost, Future Cost, Goodness of fit, High and Low Method,  Historical Cost, Implicit Cost, Imputed cost, indirect Cost Joint Cost, Long-run Cost, Managed cost, Marginal Cost, Normal Cost, Notional Cost, Operation Cost, Opportunity Cost, Out-of-Pocket Cost, Period Cost, Past Cost, Postponable Cost, Predetermined Cost, Pre-Production Cost, Process Cost, Product Cost, Production Cost, Programmed Cost, Regression Analysis, Relevant Cost, Replacement Cost, Research Cost, Scattergraph, Selling Cost, Semi-fixed Cost, Semi-variable cost, Short-run Cost, Shutdown Cost, Standard Cost, Stepped-up Cost, Sunk Cost, Traceable Cost, Unavoidable Cost, Uncontrollable Cost Urgent Cost, Variable Cost.


Learning objective

  • Need of cost analysis in decision making
  • Strategic cost management
  • Classification of costs by nature
  • Classification of costs in relation to cost centre
  • Classification of costs by function/ Activities
  • Classification of costs by time
  • Classification of cost for management decision making
  • Classification of cost by nature of production process
  • Classification of costs by behaviour
  • Techniques for segregation of semi –variable costs
  • Regression analysis and multiple regression analysis
  • Goodness of fit and coefficient of correlation
  • Coefficient of determination
  • research and development costs: Accounting control
  • codification of costs
  • Criteria for allocation of common costs

Bba study material Introduction to Cost Concept For decision Making Short note


The business environment has changed dramatically after 1980s. improved communication and transportation systems brought about a much more competitive environment . Spending on marketing and distribution has increased. The modern organisations started exercising strict control over manufacturing costs. Information technology changed the way organisations conducted business. Large volumes of products, customers etc. require better planning systems for their moment and control. The traditional cost accounting systems are criticised for following reasons:

(a) It does not provide detailed information on process efficiencies.

(b) It is focused too narrowly on inputs, such as direct material, direct labor etc. that are relatively insignificant in today’s production environment.

(c) It fails to provide accurate product costs.

The cost behaviour in traditional accounting is usually seen as the distinction between fixed and variable costs. The true and accurate classification of costs is seen difficult exercise due to existence of semi-variable or semi-fixed component in total costs. Volume of output is normally determined by many different products which all have different impacts on fixed and variable costs. Costs do not behave in a smooth and homogeneous manner. Factors that could affect cost behaviour include mass quantities, decisions, policies, movement and volume. Cost accounting for decision making should consider the implication of these factors on cost structures. These factors could be grouped into the following levels of variability:

  • Unit level- Costs vary in proportion to change in units produced . the cost driver will be a volume indicator such as kilograms or units.
  • Batch level- Costs vary in proportion to the number of times preparation for any process will be required. The cost driver could be the set-up time on machines or the number of batches. Batch level variability also includes actions on groups of items, for example, order and invoices often consist of more than one line item.
  • Product level Costs will vary when a change is effected in the product model. The cost driver could constitute changes to products or designs.
  • Process level- Costs will vary when process changes take place, such as maintenance to the process or re-engineering of the process. The cost driver would be the number of such changes.
  • Plant level- costs are incurred to sustain the facilities and premises such as security, insurance and rental. Cost drivers could include time , decisions, space, etc.

In the current industrial scenario it becomes difficult in the industry to sustain and survive unless the costs are correctly accounted for, controlled and reduced so as to sustain and remain in the industry.

Bba Study Material of Strategic Cost Management (SCM) Short Notes

Strategic Cost Management (SCM)

SCM is a fundamentally new way of managing an organisation. It comprises:

  • A strategic analysis of the business to identify unprofitable products, customers, marketing and distribution channels, etc.
  • An evaluation of the business from a value chain perspective. Linkages, both internally and externally, are taken into consideration.
  • The optimisation of business processes and activities instead of functions, and the evaluation of the effect of both upstream and downstream decisions.
  • The implementation of continuous cost improvement programmes instead of comparisons with outdated standard costing approaches.
  • The use of performance measurement systems that are early indicators of corporate success in critical areas such as time, quality and cost.
  • The improvement in activities that add value while value-destroying activities are identified and eliminated. Particular emphasis is placed on the evaluation of support activities.
  • The elimination of capacity and other constraints.
  • The integration of quality management programmes with the costing system, not only to identify wastage but also to develop the methods to value and to eradicate it.
  • The implementation of productivity management programmes that are supplemented by appropriate benchmarking and service level evaluations.
  • Value engineering and value analysis that are used as important tools to restructure product costs.
  • Changes in costing and accounting systems to reflect total cost approaches instead of conventional classifications of cost between production, marketing, administration, etc.(or only the minimum information that is required by low).
  • A thorough understanding by management of the cost behavior and the underlying cost drivers.
  • The introduction of cost of capital theory as well as residual income theory to cost decision making in order to optimize the use of capital resources.
  • Managing costs with a long-term focus . few costs are considered fixed and therefore non-manageable.

Bba study Material Cost Accounting short notes of Classification of Costs

Classification of Costs

Costs may be classified into variety of ways, according to the decision needs of the management. Cost data is analysed and presented to the management, under the principles of management by exception. The important classifications of cost are as follows:

1.   Classification by nature  – Material, Labor, Expenses.
2. Classification in relation to cost centre

 – Direct material, direct labour, direct expense, -indirect material, and indirect labour, indirect expenses.
3. classification by function/activities – Production cost, Administration cost , Selling cost , Distribution cost, and Research & Development expenditure .
4. classification by time – Historical cost, predetermined cost , Standard cost, Estimated cost.
5. classification for management decision making – Marginal cost, Differential cost, Opportunity cost, Replacement cost, Relevant cost, Imputed cost, sunk cost, Normal cost, Abnormal cost, Avoidable cost, unavoidable cost etc..
6. classification by nature of production process – Batch cost, Process cost, Operation cost, Operating cost, contract cost, and joint cost.
7. classification by behavior – Fixed cost, variable cost and Semi-variable cost.

Bba Study Material to Cost Accounting short notes of Classification of Costs by nature

Classification of Costs by Nature

The total cost of a product or services basically classified into material coat , labour cost and expenses as follows:

Material Cost-

it is the cost of material of any nature used for the purpose of production of a product or a service. Material cost includes cost of procurement, freight in wards, taxes and duties , insurance etc. directly attributable to the acquisition . Trade discounts, rebates, duty drawbacks, refunds on account of modvat, cenvat sales tax and other similar items are deducted in determining the costs of material.

Labor cost-

Labor cost includes salaries and wages paid to permanent employees, temporary employees and also to employees of the contractor. The labour cost be analysed into following:

  • Monetary benefits payable immediately Salaries and wages, dearness and other allowances, production incentive or bonus.
  • Monetary benefits after sometime in future Employer’s contribution to P.F., E.S.I., Gratuity, profit linked bonus.
  • Non-monetary benefits (fringe benefits) Free or  subsidised food ,free medical  or hospital facilities, free or subsidised education to the employees children, free or subsidised housing etc.

Expenses- These are the costs other than material cost or labour cost which are involved in an activity. Expenditure on account of utilities, payment for bought-out services, job processing charges etc. can be termed as expenses.

Bba study Material to Cost Accounting Short notes of Classification of Costs in Relation to Cost Centre

Classification of Costs in Relation to Cost Centre

The elements of cost can be studied under the classification of direct and indirect costs. If the object the of interest for identifying and measuring cost is to determine how much sacrifice is involved in manufacturing a particular product, then initially one can define the three elements of total cost i.e. material, labour, and expenses.

(1). Direct Cost-

The direct costs are those which can be identified easily and indisputably with a unit of operation or costing unit or cost centre. Costs of direct material, direct labour and direct expenses can be directly allocated or identified with a particular cost centres or a cost unit and can be directly charged to such cost centre or cost unit . These costs are also called ‘traceable costs’.

(a).Direct Material Cost

The direct material costs are those which can be identified easily and indisputably with a unit of operation or costing unit or cost centre. the  direct material cost can be direct allocated or identified with particular cost centre or cost units and can be directly charged to such cost centres or cost units. Raw materials are directly identifiable as part of the final product and are classified as direct material. For example, wood used in production of tables and chairs, steel bats used in steel factory etc. are the direct material    that becomes part of the finished product.

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