Professional Documents
Culture Documents
Introduction
COST - MEANING
Cost means the amount of expenditure ( actual or notional) incurred on, or attributable to, a given thing.
ELEMENTS OF
COST
COST
MATERIALS
OTHER EXPENSES
LABOUR
DIRECT
INDIRECT DIRECT
INDIRECT
DIRECT
INDIRECT
OVERHEADS
DOH
FOH
AOH
SOH
MATERIAL: The substance from which the finished product is made is known as material.
Direct material is one which can be directly or easily identified in the product Eg: Timber in furniture, Cloth in dress, etc.
LABOUR: The human effort required to convert the materials into finished product is called labour. DIRECT LABOUR is one which can be conveniently identified or attributed wholly to a particular job, product or process. Eg:wages paid to carpenter, fees paid to tailor,etc.
INDIRECT LABOUR is one which cannot be conveniently identified or attributed wholly to a particular job, product or process.
OTHER EXPENSES are those expenses other than materials and labour. DIRECT EXPENSES are those expenses which can be directly allocated to particular job, process or product. Eg : Excise duty, royalty, special hire charges,etc.
INDIRECT EXPENSES are those expenses which cannot be directly allocated to particular job, process or product.
COST SHEET
DIRECT MATERIAL DIRECT LABOUR DIRECT EXPENSES
SALES
FACTORY COST
+ADMINISTRATIVE OVERHEADS COST OF PRODUCTION +OPENING STOCK OF FINISHED GOODS -CLOSING STOCK OF FINISHED GOODS COST OF GOODS SOLD +SELL. & DIST. OVERHEADS COST OF SALES +PROFIT
SALES
Exh. 2-7
Exh. 2-7
Raw material available for use Deduct: Raw material inventory, December 31 Raw material used
$ 134,980
Schedule of Cost of Goods Manufactured Raw material used Direct labor Total manufacturing overhead Total manufacturing costs Add: Work-in-process inventory, January 1 Subtotal Deduct: Work-in-process inventory, December 31 Cost of goods manufactured $ $ $ $ 134,980 50,000 230,000 414,980 120 415,100 100 415,000
Exh. 2-7
Exh. 2-7
Utilities 15,000 Comet Computer Corporation Insuranceof Cost of Goods Manufactured 5,000 Schedule Total manufacturing overhead $ 230,000
Raw material used Direct labor Total manufacturing overhead Total manufacturing costs Add: Work-in-process inventory, January 1 Subtotal Deduct: Work-in-process inventory, December 31 Cost of goods manufactured
$ $ $
Exh. 2-9
Exh. 2-9
Exh. 2-7
Exh. 2-7
Cost of goods available for sale Comet Computer Corporation Deduct Finished-goods inventory, Dec. 31 Cost of goods sold
Income Statement $ 415,010 For the Year Ended December 31, 20X2 $ $ $ $
Sales revenue Less: Cost of goods sold Gross margin Selling and administrative expenses Income before taxes Income tax expense Net income
COST UNIT ICMA defines cost unit as A unit of quantity of product, service or time related to which costs may be ascertained or expressed. For e.g. Brick works per 1,000 bricks Steel co.s per tonne of steel Transport co.s per pass km
COST CENTRE
ACCORDING TO ICMA, Cost centre means A location, person or item of equipment for which costs may be ascertained and used for the purpose of cost control.
COST ESTIMATION Cost estimation is the process of pre determining the costs of a certain product, job or order.
COST ASCERTAINMENT
Cost ascertainment is the process of determining costs on the basis of actual data.
COST ALLOCATION
Cost allocation refers to the allotment of whole items of costs to cost centres or cost units.Eg: salary of foreman, power, etc.
COST APPORTIONMENT
Cost apportionment refers to the allotment of proportions of items of cost to cost centres or cost units. Eg : Salary of GM is apportioned to various departments on the basis of time devoted by him.
Conclusion