Cost & Management Accounting

Lecture session-1

Introduction & learning objectives.

Dr. D.R. Dandapat.

 Cost Management
Cost Management is not only about reducing
costs. Cost Management also includes making
decisions to incur additional costs, e.g., to
improve customer satisfaction and quality and
to develop new products with the goal of
enhancing revenues and profits. Whether or
not to enter new markets, implement new
organisational processes, and change product
designs are also cost management decisions.
 Cost Accounting & Management
Accounting
Cost Accounting is the process of measuring,
analyzing and reporting financial and non-
financial information related to costs of acquiring
or using resources in an organisation.
Management Accounting is the process of
measuring, analyzing and reporting financial and
non-financial information that helps managers
make decisions to fulfill the goals of an
organization.
 Concepts

.Cost: The amount of expenditure (actual or notional) incurred on, or

attributable to, a specified thing or activity.
Cost Object: Any activity or item for which a separate measurement of
costs is desired. Cost object may be an activity, or operation, a product or
service, a project, a department or a programme.
Cost Unit: A unit of product or service in relation to which costs are
ascertained.
Cost Centre: A production or service location, function, activity or item of
equipment whose cost may be attributed to cost units.
Cost Driver: A variable, such as the level of activity or volume, that
causally affects cost over a given time span.
 Inventoriable Costs: Costs of a product that are
considered as assets in the balance sheet when
they are incurred and that become cost of goods
sold only when the product is sold.
Period Costs: all costs in the income statement
other than cost of goods sold, e.g., marketing,
distribution, customer service costs.
Prime Cost: All direct manufacturing costs
Conversion Costs: All manufacturing costs other
than direct material costs. (incurred to convert
direct materials into finished goods).
 Session 1: Introduction-Learning goals
Cost classification:

1. On the basis of Functions:

PRODUCTION COSTS
ADMINISTRATION COSTS
RESEARCH & DEVELOPMENT COSTS
MARKETING COSTS (SELLING, PUBLICILT & DISTRIBUTION)

2. On the basis of behavior.: FIXED, VARIABLE, SEMI FIXED OR SEMI

VARIABLE

3. On the basis of Elements.: MATETIAL, LABOUR, EXPENSES

DIRECT & INDIRECT
 COGS & INCOME STATEMENT
Revenue
Less Cost of Goods Sold
( Beginning Finished Goods Inventory
+ Cost of Goods manufactured
Cost of Goods available for Sale
-- Ending Finished Goods Inventory)

Gross Margin
Less Operating Costs
Operating Income
 SCHEDULE OF COST OF GOODS
MANUFACTURED
Direct Material Used / Consumed
Direct Manufacturing Labour
Manufacturing Overheads
Total Manufacturing Costs Incurred
Add Beginning WIP
Total Manufacturing Costs to account for
Less Ending WIP
Cost of Goods Manufactured