Methods / Techniques of Cost Accounting

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Ex-MBA 2011-2014 ( Batch - Weekend )

Semester - 2
Subject: Managerial Accounting
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Title : Methods / techniques of cost accounting

Submitted by : Vishwajeet Gaikwad – 2011G04 Submitted to : Prof. Sameer Deshmukh

INDEX

SR NO| TITLE| PAGE NO|
1| INTRODUCTION| 3|
2| METHODS OF COST ACCOUNTING| 4|
3| TECHNIQUES OF COST ACCOUNTING| 8|
4| USEFULNESS| 10|
| | |
| | |
5| EXAMPLE, CASE, SCENARIO | 14|
| | |
| | |

1. INTRODUCTION
Cost accounting information is designed for managers. Since managers are taking decisions only for their own organization, there is no need for the information to be comparable to similar information from other organizations. Instead, the important criterion is that the information must be relevant for decisions that managers operating in a particular environment of business including strategy make. Cost accounting information is commonly used in financial accounting information, but first we are concentrating in its use by managers to take decisions. The accountants who handle the cost accounting information generate add value by providing good information to managers who are taking decisions. Among the better decisions, the better performance of your organization, regardless if it is a manufacturing company, a bank, a non-profit organization, a government agency, a school club or even a business school. The cost-accounting system is the result of decisions made by managers of an organization and the environment in which they make them. The organizations and managers are most of the times interested in and worried for the costs. The control of the costs of the past, present and future is part of the job of all the managers in a company. In the companies that try to have profits, the control of costs affects directly to them. Knowing the costs of the products is essential for decision-making regarding price and mix assignation of products and services. The cost accounting systems can be important sources of information for the managers of a company. For this reason, the managers understand the forces and weaknesses of the cost accounting systems, and participate in the evaluation and evolution of the cost measurement and administration systems. Unlike the accounting systems that help in the preparation of financial reports periodically, the cost accounting systems and reports are not subject to rules and standards like the Generally Accepted Accounting Principles. As a result, there is a wide variety in the cost accounting systems of the different companies and sometimes even in different parts of the same company or organization

2. METHODS OF COST ACCOUNTING
A. Job Costing
The system of job costing is used where production is not highly repetitive and in addition consists of distinct jobs so that the material and labor costs can be identified by order number. This method of costing is very common in commercial foundries and drop forging shops and in plants making specialized industrial equipments. In all these cases, an account is opened for each job and all appropriate expenditure is charged thereto. B. Contract Costing

Contract costing does not in principle differ from job costing. A contract is a big job whereas a job is a small contract. The term is usually applied where large-scale contracts are carried out. In case of ship-builders, printers, building contractors etc., this system of costing is used. Job or contract is also termed as terminal costing. C. Cost Plus Costing

In contracts where in addition to cost, an agreed sum or percentage to cover overheads and fit is paid...
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