Introduction to Cost Accounting
1. Objectives and Scope of Cost Accounting
Cost Accounting involves classifying, recording, and allocating expenditures to determine the cost of products or services.
- Objectives: Cost ascertainment, cost control, cost reduction, pricing decisions, and preparing financial statements for management.
- Scope: Includes cost book-keeping, cost analysis, cost audit, and cost comparison across quarters.
2. Cost Centers vs. Cost Units
- Cost Center: Any location, person, or equipment item where cost can be accumulated (e.g., machine shop, sales office).
- Cost Unit: A standard unit of quantity of product or service in which costs are expressed (e.g., per ton of cement, per kilowatt-hour of power).
3. Elements of Cost
- Material Cost: Cost of substances used in production.
- Labour Cost: Cost of human resources utilized.
- Expenses: Other operational and utility charges.
4. Cost Behavior Patterns
- Fixed Costs: Remain constant in total, irrespective of output volume (e.g., rent).
- Variable Costs: Vary directly and proportionally with production volume (e.g., raw materials).
- Semi-Variable Costs: Contain both fixed and variable elements (e.g., telephone bill with fixed line rent and usage-based call charges).