Management Notes

Reference Notes for Management

Evolution of Cost Accounting – Introduction to Cost Accounting | Management Notes

Evolution of Cost Accounting

Evolution of Cost Accounting

Cost accounting seeks to establish the costs of each product produced or service provided by an organization through systematic recording and analysis of expenses. By knowing the costs of each product or service, the company’s management will be able to reduce costs, fix prices, and maximize profits.

Accounting has existed since the dawn of civilization. The process by which economic information is identified, measured, recorded, and communicated in terms of money. The utility of accounting information resides in its ability to reduce uncertainty. Relevant, verifiable, quantifiable and biased information must be presented.

Businesses were traditionally small and market exchanges between individuals and organizations characterized them before the industrial revolution. At that time, there was a need for accurate bookkeeping, but not so much cost accounting.

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Job Costing – Definition, Features, Advantages and Limitations | Cost Accounting

Job Costing

Job Costing

In job costing, costs are accumulated separately for each job or work order undertaken by an organization. The job order method of cost accounting is used in industries which manufacture products or render services against specific orders. According to the job costing system, an order, lot or batch of product can be taken as a cost unit, i.e. a job. The job costing method is a method of costing in which the cost units can be identified separately and need to be separately costed. An important purpose of job costing is to gather all the costs incurred during the course of a job.

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Cost Sheet Format – Method of Unit Costing | Introduction to Cost Accounting

Cost Sheet Format

What is Cost Sheet

Cost sheets are documents that detail the costs associated with a cost centre or cost unit. This statement of cost outlines in detail the various components of the cost of goods produced, including prime cost, factory cost, cost of production, total cost, and cost per unit.

Cost sheets are reports on which all the costs of a product or production job are listed. Using a cost sheet, you can calculate the margin earned from a product or job, and use that information to set the price for similar products in the future.

As well as cost control measures, it can be used as a basis for several other measures. Despite its name, a cost sheet can be compiled and viewed on a computer screen as well as on paper.

The cost sheet documents the direct, indirect, fixed, and variable costs a business incurs from beginning to end. The company can then calculate the total production cost and determine the price for each item based on this information.

Service providers can also benefit from cost sheets, although they are more common in production-based businesses. A cost sheet is essential if you need to keep track of resources in your business.

The cost sheet is prepared to determine the cost of a product, a job or an operation, to provide quotes or to determine the price to supply goods or to provide services.

Calculating the cost per unit and determining the selling price of a product are carried out using a cost sheet. Management can identify inefficiencies in production, if any, by comparing cost sheets from the two periods and taking corrective action if necessary.

Preparing cost sheets for various factories that produce the same product are helpful for cost comparisons between factories that are under the same management or are managed differently.

This means that a cost sheet can be used to control costs and reduce costs. There are various types of cost sheets, including simple cost sheets and cost sheets that account for opening and closing stock of work-in-progress and finished goods.

It is clear that there is no golden rule for the sequence in which unit cost and total cost columns should appear. Both can appear before the other.

Key Points,

  • As a statement, it is prepared.
  • In order to determine prime cost, factory cost, and total cost, expenses are classified.
  • In order to facilitate comparison, previous period figures are provided.
  • The figures are based on actual and estimated expenses.
  • It is prepared for each job and sometimes for the entire factory.

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Material Control – Material Cost | Introduction to Cost and Management Accounting

Material Control

Material Control

Material control provides systematic control and regulation of the purchase, storage, and use of materials so as to maintain an even flow of production and at the same time avoid excessive financial investments in raw materials. Having effective material control reduces the loss and wastage of materials that would otherwise go unnoticed.

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Financial Accounting Vs Cost Accounting – Introduction to Cost and Management Accounting | Management Notes

Financial Accounting Vs Cost Accounting

Financial Accounting Vs Cost Accounting Both financial accounting and cost accounting deal with systematically recording and presenting financial information. While financial accounting reveals the profits and losses of a business as a whole during a given period, cost accounting displays, by analysis and localisation, the unit costs and profits and losses of different product lines. … Read more

Importance of Cost Accounting -4 Major Importance | Introduction to Cost and Management Accounting

Importance of Cost Accounting

Importance of Cost Accounting

Management has realized the importance of cost accounting due to the limitations of financial accounting. Any type of business requires expenditures on labour, materials, and other items needed to manufacture and dispose of the product. Each stage of the process should be managed to avoid waste. This requires ensuring that no machine remains idle, that efficient labour is appropriately rewarded, that byproducts are properly utilized, and that costs are accurately determined.
A good costing system benefits not only the management, but also creditors and employees. The cost accounting system increases the productivity of an organization and contributes to the prosperity of the nation. Hence, the following are the reasons why cost accounting is important: 

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Objectives of Cost Accounting – Introduction to Cost and Management Accounting | Management Notes

Objectives of Cost Accounting

Objectives of Cost Accounting

Cost accounting involves the systematic tracking of expenses and analysis of the same so that an organization is aware of the costs associated with each product it manufactures or service it renders.

With information regarding the cost of each product or service, management can find cost-saving opportunities, fix prices, maximize profits, and so on. Basic objective of cost accounting is :

Objectives of Cost Accounting

 

1. Cost Ascertainment:

Cost Ascertainment as a Objectives of Cost Accounting

Enables identification and classification of all costs, distinguishing between direct and indirect costs.

Provides a comprehensive understanding of the cost structure, aiding in pricing decisions and cost management.

Supports accurate product costing, which is essential for setting competitive prices.

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