p
pp 

3


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m ¶Cost· is a loss of resources for achieving certain
objectives or benefits/ advantages.
m ¶Cost· is the amount of expense (actual or
notional) incurred or attributable to a specified
article product or activity.
m ¶Cost· is always related to a particular object, i.e. difficult
to assess any cost in isolation. E.g. ² cost of 1 apple,
ticket cost, exam fees etc.
p
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p
 

m ¶Costing· is the technique and process of cost
ascertainment.
m ¶Cost Accounting· is the collection and
recording of costs and preparation of
periodical reports.
m ¶Cost Accountancy· is the application of
costing and cost accounting principles,
methods and techniques for the purpose of
managerial decision making.
  
 p
  
o Ascertainment of costs
o Determination of selling price
o Profitability analysis
o Cost control and cost reduction
o Ascertainment of profits of activities
o Assisting management in decision making
o Variance analysis (actual vs. budgeted)
o Measuring use of resources
p
p 
 
G Cost Object ² anything for which a separate
measurement of cost is desired. E.g. a product,
a service, a project, a brand etc.
G Cost Unit ² it is a unit of product, service or
time in relation to which costs are ascertained/
expressed. E.g. cost per km, cost per litre etc.
G Cost Centre ² it is defined as a location, person
or an item for which costs may be ascertained
for the purpose of cost control. For e.g. library
(impersonal) and librarian (personal)
p
p 
 
G Direct Cost ² costs which can be directly related
or allocated to an activity, cost unit, cost centre.
E.g. raw material, labour cost in prodn.
G ndirect Cost ² costs that cannot be directly
linked or allocated to a cost unit, cost centre. E.g.
consumables, driver salary in production.
G Opportunity Cost ² value of sacrifice made or a
benefit foregone by accepting an alternative
course of action. E.g. land used for commercial
property, & residential development foregone.
p
p 
 
G Out-
Out-of-
of-pocket cost ² costs involving actual
cash outflows. Mainly a short-
short-run concept, used
in determination of selling price.
G Product Cost ² costs that are associated with
purchase/ production/ sale of material. E.g.
raw material, transport charges etc. (F
ED)
G Period Cost ² costs that are not associated with
a product, but are incurred for a specific period.
Costs are irrespective of actual activity. For e.g.
electricity, rent etc. (VAR ABLE)
p
p 
 
G unk Cost ² costs that are incurred in the past
(historical costs). Not useful in decision making
in the current period.
G Relevant Cost ² costs that are affected by
management decisions are relevant costs. E.g.
cost of maintenance on sale of old machine.
G Profit Centre ² centres which are responsible
for generating and maximizing profits. For e.g.
departments within an organization (mango
unit)
p
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p
p  

Materials = Direct Matl. + ndirect Matl.
(+) Labour = Direct Lab. + ndirect Lab.
(+) Expenses = Direct Exp. + ndirect Exp.

p

= r p
 +  


OVERHEADS

Production, Factory, Selling &

Office, General,
Manufacturing, Distribution,
Administrative
Works, Technical Promotional

motal Cost = Prime Cost + Overheads (OH)

motal Cost = Prime Cost + Factory OH + Office OH +
elling Distribution OH
ë 
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0 Dp
 ² cost of each job is separately ascertained.
Useful for customer order-
order-wise business such as
garage, printing press etc.
0 Ñ
 p
  ² a batch is a collection of small orders
produced together. Each batch is treated as a separate
cost unit. E.g. medicines, paints
0 p 
p
  ² cost of each contract is ascertained
separately. Useful for construction contracts
spreading over long periods.
ë 
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0 r

p
  ² cost of completion of each stage
of work is ascertained. t is used in a typical
mfg. industry, where cutting ² mfg. ² assembly
² packing ² dispatch.
0 
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  ² used for ascertainment of
costs in service industry like transport, hotel etc.
0 ë

p
  ² it is a technique of costing
used for managerial decision making.
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Sr. Cost Accounting Financial Accounting
1 Purpose as a M  tool for Purpose as a statutory
management decisions requirement
2 Reporting as required by Reporting as per statutory
management calendar
3 Audit not compulsory for Audit is compulsory for
every company every company
4 Provides product-
product-wise/ Provides overall profits of
process--wise profits
process the company
5 Records/ reports for Reports, statements given to
internal use only shareholders, banks etc
6 Financial items not included in cost statements such as
donations, interest on loans, income tax, bad debts etc.
Cost Sheet
G Cost heet is a summary of all costs ascertained
for a cost unit or a cost centre.
G Cost heet document can be prepared for
recording actual costs or estimated costs.
G Cost heet analyses and classifies different costs
as per their functions.
G Cost heets can be prepared for two or more
periods for comparative studies
G motal Cost = Prime Cost + Overheads
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