Introduction To Cost Accounting Part 1(Video)
Cost accounting is the application of accounting and costing principles, methods, and techniques in the ascertainment of costs and the analysis of saving or excess cost incurred as compared with previous experience or with standards.
Concepts of Cost Accounting
Concepts of Cost Accounting
Following are the main concepts of cost accounting:
Cost
There is a cost involved to purchase or produce anything. Costs may be different for the same product, depending upon the stages of completion. The cost changes according to the stage a product is in, for example, raw material, work in progress, finished goods, etc. The cost of a product cannot be perfect and it may vary for the same product depending upon different constraints and situations of production and market.
There is a cost involved to purchase or produce anything. Costs may be different for the same product, depending upon the stages of completion. The cost changes according to the stage a product is in, for example, raw material, work in progress, finished goods, etc. The cost of a product cannot be perfect and it may vary for the same product depending upon different constraints and situations of production and market.
Expenses
Some costs are actual, such as raw material cost, freight cost, labor cost, etc. Some expenses are attributable to cost. To earn revenue, some expenses are incurred like rent, salary, insurance, selling & distribution cost, etc. Some expenses are variable, some are semi-variable, and some of fixed nature.
Some costs are actual, such as raw material cost, freight cost, labor cost, etc. Some expenses are attributable to cost. To earn revenue, some expenses are incurred like rent, salary, insurance, selling & distribution cost, etc. Some expenses are variable, some are semi-variable, and some of fixed nature.
Loss
Expenses are incurred to obtain something and losses are incurred without any compensation. They add to the cost of product or services without any value addition to it.
Expenses are incurred to obtain something and losses are incurred without any compensation. They add to the cost of product or services without any value addition to it.
Cost Center
Cost center refers to a particular area of activity and there may be multiple cost centers in an organization. Every cost center adds some cost to the product and every cost center is responsible for all its activity and cost. A cost center may also be called a department or a sub-department.
Cost center refers to a particular area of activity and there may be multiple cost centers in an organization. Every cost center adds some cost to the product and every cost center is responsible for all its activity and cost. A cost center may also be called a department or a sub-department.
There are three types of cost centers:
Personal and Impersonal Cost Centers - A group of persons in an organization responsible as a whole for a group activity is called a personal cost center. In case of impersonal call center, the activities are done with the help of plant and machinery.
Operation and Process Cost Centers - The same kind of activity is done in an operation department. In a process cost center, as the name suggests, different kinds of processes are involved.
Product and Service Cost Centers - A department where all activities refer to product is called a product department. When the centers render their services to a product department for its smooth functioning, they are called service cost centers.
Contribution Margin
Contribution margin is the difference between sale price and variable cost.
Contribution margin is the difference between sale price and variable cost.
Ordering Costs
Ordering costs represent the cost to place an order, up to to stage until the material is included as inventory.
Ordering costs represent the cost to place an order, up to to stage until the material is included as inventory.
Development Cost
To develop new product, improve existing product, and improved method in producing a product called development cost.
To develop new product, improve existing product, and improved method in producing a product called development cost.
Policy Cost
The cost incurred to implement a new policy in addition to regular policy is called policy cost.
The cost incurred to implement a new policy in addition to regular policy is called policy cost.
For better understanding,
Source: TutorialsPoint(Cost Accounting)