INTRODUCTION The spurt in the industrial growth, as mentioned above, also resulted in the increased importance of financial accounting

and audit (1900 AD onwards).One of the fundamental issues to be resolved by the accountants during this period was the measurement of the value of inventory while preparing financial statements. The valuation had a deep impact over the projected profitability of a company, which in turn affected the willingness of various stakeholders to inject large amount of capital in the business. The valuation also directly affected the taxes which the company was obliged to pay to the government since higher profits meant higher taxes and vice versa. Cost accounting was initiated for manufacturing organizations and as a field of practice was limited within the factory premises. However, with the increase in its scope , cost accounting today is equally important to both manufacturing and service organizations and also does not restrict itself to inventory valuation alone. It is used in (1)various decision making scenarios e.g. whether to produce for captive consumption or buy from outside suppliers,(2) supply of information to the government (cost audit), (3)planning and control of expenses(variance analysis) , (4)tracking expenses through a products life cycle (life cycle costing),(5) fixation of selling prices (cost plus and other approaches) etc. The use of information technology has helped companies keep /maintain different cost systems for different purposes

DEFINITION Costing is defined as the technique and process of ascertaining costs. Cost Accounting is defined as "the process of accounting for cost which begins with the recording of income and expenditure or the bases on which they are calculated and ends with the preparation of periodical statements and reports for ascertaining and controlling costs." Cost Accountancy has been defined 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. It includes the presentation of information derived there from for the purpose of managerial decision making.

IMPORTANCE OF COST ACCOUNTING TO BUSINESS CONCERNS Management of business concerns expects from Cost Accounting a detailed cost information in respect of its operations to equip their executives with relevant information required for planning, scheduling, controlling and decision making. To be more specific, management expects from cost accounting - information and reports to help them in the discharge of the following functions : (a) Control of material cost : Cost of material usually constitute a substantial portion of the total cost of a product. Therefore, it is necessary to control it as far as possible. Such a control may be exercised by (i) Ensuring un-interrupted supply of material and spares for production. (ii) By avoiding excessive locking up of funds/capital in stocks of materials and stores. (iii) Also by the use of techniques like value analysis, standardisation etc. to control material cost. (b) Control of labour cost : It can be controlled if workers complete their work within the standard time limit. Reduction of labour turnover and idle time too help us, to control labour cost. (c) Control of overheads: Overheads consists of indirect expenses which are incurred in the factory, office and sales department ; they are part of production and sales cost. Such expenses may be controlled by keeping a strict check over them. (d) Measuring efficiency : For measuring efficiency, Cost Accounting department should provide information about standards and actual performance of the concerned activity. (e) Budgeting : Nowadays detailed estimates in terms of quantities and amounts are drawn up before the start of each activity. This is done to ensure that a practicable course of action can be chalked out and the actual performance corresponds with the estimated or budgeted performance. The preparation of the budget is the function of Costing Department. (f) Price determination: Cost accounts should provide information, which enables the management to fix remunerative selling prices for various items of products and services in different circumstances.

(g) Curtailment of loss during the off-season: Cost Accounting can also provide information, which may enable reduction of overhead, by utilising idle capacity during the off-season or by lengthening the season. (h) Expansion: Cost Accounts may provide estimates of production of various levels on the basis of which the management may be able to formulate its approach to expansion. (i) Arriving at decisions: Most of the decisions in a business undertaking involve correct statements of the likely effect on profits. Cost Accounts are of vital help in this respect. In fact, without proper cost accounting, decision would be like taking a jump in the dark, such as when production of a product is stopped.

JOB COSTING According to this method costs are collected and accumulated according to jobs, contracts, products or work orders. Each job or unit of production is treated as a separate entity for the purpose of costing. Job costing is carried out for the purpose of ascertaining cost of each job and takes into account the cost of materials, labour and overhead etc. The job costing method is also applicable to industries in which production is in batches since batch production basically is of the same character as the job order production, the difference being mainly one in the size of different orders. The method then may also be described as Batch Costing. The job costing method of costing may be regarded as the principal method of costing since the basic object and purpose of all costing is to analyse and ascertain cost of each unit of production so that it may be possible to control and regulate cost and to determine the profitability or otherwise of each work order or product line. The basic principles enunciated for the job costing method are, therefore, valid essentially for all types of industry. For example, printing; furniture; hardware; ship-building; heavy machinery; interior decoration, repairs and other similar work. The job costing method essentially involves preparation of a separate cost sheet for each job, disclosing cost of material issued for the job, labour charges incurred (on the basis of bill of material and time cards respectively); when the job is completed, overhead charges are added for ascertaining total expenditure (See carefully the entries made in the specimen page) Job (Account on page alongside the figures are assumed).

Job Costing may be employed in the following cases: - When jobs are executed for different customers according to their specifications. - When no two orders are alike and each order/job needs special treatment. - Where the work-in-progress differs from period to period on the basis of the number of jobs in hand. Procedure of job Cost Accounting Accounting for Materials : An essential requirement of job cost accounting is that direct materials and their cost must be traced to and identified with specific job or work order. This segregation of materials cost by jobs or work orders is brought about by the use of separate stores requisitions for each job or work order. Where a bill of material is prepared, it provides the basis for the preparation of these stores requisitions. But when the entire quantity of materials specified in the bill of materials is drawn in one lot or in instalments, the bill itself could be made to serve as a substitute for the stores requisition.After the materials have been issued and the stores requisitions have been priced, it is usual to enter the value of the stores requisition in a material abstract or analysis book. It serves to analyse and collect the cost of all direct materials according to job or work orders and departmental standing orders or expense code numbers.From the abstract book, the summary of materials cost of each job is posted to individual job cost sheets or cards in the Work-in-Progress ledger. The postings are usually made weekly or monthly. Similarly, at periodical intervals, from the material abstract books, summary cost of indirect material is posted to different standing orders or expense code numbers in the Overhead Expenses ledger. If any special material has been purchased for a particular job, it is generally the practice to charge such special material direct to the job concerned without passing it through the Stores Ledger, as soon as it is purchased.If any surplus material is left over in the case of any job, unless it can be immediately and economically used on some other job, the same is returned to the store room with a proper supporting document/stores Debit Note or Shop Credit, and the relevant job account is credited with the value of excess material returned to the store room.If the surplus material is utilised on some other job, instead of being returned to the store room first, a material transfer note is prepared. The transfer note would show the number of the transfer to job as well as transferee job (or jobs) so that, on that basis, the cost thereof can be adjusted in the Workin-Progress Ledger.

Accounting for Labour : All direct labour cost must be analysed according to individual jobs or work orders. Similarly, different types of indirect labour cost also must be collected and accumulated under appropriate standing order or expenses code number.The analysis of labour according to jobs or work orders is, usually, made by means of job time cards or sheets. All direct labour is booked against specific jobs in the job time cards or sheets. All the idle time also is booked against appropriate standing order expense code number either in the job time card for each job or on a separate idle time card for each worker (where the job time card is issued job-wise). The time booked or recorded in the job time and idle time cards is valued at appropriate rates and entered in the labour abstract or analysis book. All direct labour cost is accumulated under relevant job or work order numbers, and the total or the periodical total of each job or work order is then posted to the appropriate job cost card or sheet in Work-in-Progress ledger. The postings are usually made at the end of each week or month.The abstraction of idle time costs under suitable standing order or expenses code numbers is likewise done and the amounts are posted to the relevant departmental standing order or expense code number in the Overhead Expenses Ledger at periodical intervals. As regards other items of indirect labour cost these are collected from the payrolls books for the purpose of posting against standing order or expenses code numbers in the Overhead Expenses ledger. Accounting for Overhead : Manufacturing overheads are collected under suitable standing order numbers and selling and distribution overheads against cost accounts numbers. Total overhead expenses so collected are apportioned to service and production departments on some suitable basis. The expenses of service departments are finally transferred to production departments. The total overhead of production departments is then applied to products on some realistic basis, e.g. machine hour; labour hour; percentage of direct wages; percentage of direct materials; etc. It should be remembered that the use of different methods will lead to a different amounts being computed for the works overhead charged to a job hence to different total cost.The problem of accurately absorbing, in each individual job or work order, the overhead cost of different cost centres or departments involved in the manufacture is difficult under the job costing method. It is because the cost or the expenses thereof cannot be traced to or identified with any particular job or work order. In such circumstances, the best that can be done is to apply a suitable overhead rate to each individual article manufactured or to each production order. This is essentially an arbitrary method. Price of a job : Price of a job may be arrived by adding the desired percentage of profit to the total cost of the job. Treatment of spoiled and defective work : Spoiled work is the quantity of production that has been totally rejected and cannot be rectified. Defective work on the other hand refers to production that is not as perfect as the saleable product but is capable of being rectified and brought to the required degree of perfection provided some additional expenditure is incurred.

Normally, all the manufacturing operations are not fully successful; they result in turning out a certain amount of defective work. Nonetheless, over a period of time it is possible to work out a normal rate of defectives for each manufacturing process which would represent the number of defective articles which a process shall produce in spite of due care. Defects arise in the following circumstances : (1) Where a percentage of defective work is allowed in a particular batch as it cannot be avoided. (2) Where defect is due to bad workmanship. (3) Where defect is due to the Inspection Department wrongly accepting incoming material of poor quality. (1) In the first case, when a normal rate of defectives has already been established, if the actual number of defectives is within the normal limit or is near thereto the cost of rectification will be charged to the whole job and spread over the entire output of the batch. If, on the other hand, the number of defective units substantially exceeds the normal, the cost of rectification of the number which exceeds the normal will be written off as a loss in the Costing Profit and Loss Account. (2) In the second case, when the defective work is due to bad workmanship the cost of rectification will be abnormal cost, i.e., not a legitimate element of the cost. Therefore, the cost of rectification shall be written off as a loss, unless by an ar-rangement, it is to be recovered as a penalty from the workman concerned. It is possible, however that the management did provide for a certain proportion of defectives on account of bad workmanship as an unavoidable feature of production. If that be the case, the cost of rectifying to the extent provided for by the management will be treated as a normal cost and charged to the batch. (3) In the third case the defect being due to negligence of the Inspection Department, the cost of rectification will be charged to the department and will not be considered as cost of manufacture of the batch. Being an abnormal cost, it will be written off to the Costing Profit and Loss Account.

PROCESS COSTING MEANING OF PROCESS COSTING Process Costing is a method of Costing used in industries where the material has to pass through two or more processes for being converted into a final product. It is defined as a method of Cost Accounting whereby costs are charged to processes or operations and averaged over units produced. Such type of costing method is useful in the manufacturing of products like steel, soap, chemicals, rubber, vegetable oil, paints, varnish etc. where the production process is continuous and the output of one process becomes the input of the following process till completion. 7.1.1 Basic features : Industries, where process costing can be applied, have normally one or more of the following features : 1. Each plant or factory is divided into a number of processes, cost centres or departments, and each such division is a stage of production or a process. 2. Manufacturing activity is carried on continuously by means of one or more process run sequentially, selectively or parallely. 3. The output of one process becomes the input of another process. 4. The end product usually is of like units not distinguishable from one another. 5. It is not possible to trace the identity of any particular lot of output to any lot of input materials. For example, in the sugar industry, it is impossible to trace any lot of sugar bags to a particular lot of sugarcane fed or vice versa. 6. Production of a product may give rise to Joint and/or By-Products. Costing Procedure : The Cost of each process comprises the cost of : (i) Materials (ii) Labour (iii) Direct expenses, and (iv) Overheads of production.

Materials - Materials and supplies which are required for each process are drawn against material requisitions from stores. Each process for which the above drawn materials will be used should be debited with the cost of materials consumed on the basis of the information received from the Cost Accounting department. The finished product of first process generally become the raw materials of second process; under such a situation the account of second process, be debited with the cost of transfer from the first process and the cost of any additional material required under this second process. Labour - Each process account should be debited with the labour cost or wages paid to labour for carrying out the processing activities. Sometimes the wages paid are apportioned over the different processes after selecting appropriate basis. Direct expenses - Each process account should be debited with direct expenses like depreciation, repairs, maintenance, insurance etc. associated with it. Overheads of production - Expenses like rent, power expenses, lighting bills, gas and water bills etc. are known as production overheads. These expenses cannot be allocated to a process. The suitable way-out to recover them is to apportion them over different processes by using suitable basis. Usually, these expenses are estimated in advance and the processes debited with these expenses on a pre-determined basis.