Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
CMA
Professional Level –I
102: Cost Accounting
Class
No. 2
102.02
Cost Concepts,
Classifications
and Statements
Cost Object
-Cost
Cost Object; -Expenditures, -Cost, -Expense
Expense and Loss;
-Cost
Cost Classifications; -Cost Data and Uses;
-The
The Chart of Accounts;
-Statement
Statement of Cost of Goods Manufactured and Sold;
-Income
Income Statement.
A cost object is a segment or an entity for which specific cost information is desired. This
segment or entity may include a contract, any customer, a unit of service, a unit of production,
a project, any activity, a subdivision etc. For a cost object a separate and independent cost
measurement is required. Costing systems are designed to calculate the cost of a cost
Cost object is a tangible input for a product manufactured/Service provided, like labor or material. For
example a cloth manufacturing firm requires some amount of predetermined labor and predetermined raw
material for any amount of cloth being manufactured. The cost of employing labor can be directly fixed as
"per man per hour" or "per man per day per hour per minute per annum", so the labor is a cost object as
you can directly associate cost with it. Similarly the raw material like cotton or threads or fabric can be
another cost object. Other examples may include services taken by another firm, for example a
transportation company/ courier company can offer some service to all customers at a fixed rate. so the
cost can be directly associated with it and the company/s
company/service
ervice can be then called as cost object.
Generally, cost object term is used for fixed Cost components of total cost
otherwise anything which is incurring some cost can be called as a cost object
like an Advertisement.
Expenditures - A
payment, or the promise
of a future payment.
Actual payment of cash or cashequivalent for goods or services,
or a charge against available
funds in settlement of an
obligation as evidenced by an
invoice, receipt, voucher, or other
such document.
A revenue expenditure is cash
used in payment for goods and
services consumed in a short
period.
A capital expenditure is cash
used in purchase of fixed assets
that last one year or more.
Page -13
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Cost - A cost is the value of money that has been used up to produce something, and
hence is not available for use anymore.
Valuation in terms of money of (1) effort, (2) material, (3) resources, (4) time and utilities consumed,
(5) risks incurred, and (6) opportunity forgone in production and delivery of a good or service. All
expenses are costs, but not all costs (such as those incurred in acquisition of an income-generating
asset) are expenses.
ELEMENTS OF COST
Expense and Loss:
An expense is a cost used up in earning revenues in a company’s main operations. Some
examples of expenses include advertising expense, commission expense, rent expense, cost of
goods sold, salaries expense, and so on. Expenses also include costs used up during the
accounting period such as interest expense, insurance expense, and depreciation expense.
A loss is associated with a “peripheral” or “incidental” transaction. Examples of losses include the
loss on the sale of an asset used in the business, loss from a lawsuit settlement, and loss from
retirement of bonds. However, there are some losses that are closer to operations, such as the
loss on write-down of inventory from cost to market.
Cost Classifications:
There are a number of different ways that we can classify costs:
By behavior:
How do costs fluctuate in response to changes in the volume of production inputs (e.g., direct labor hours,
board feet of lumber used) or production outputs (e.g., number of chairs produced).
By function:
Costs incurred as part of the manufacturing or production process are charged to inventory and then
written off as part of cost of goods sold. Selling and administrative expenses [often just S & A Expenses]
are all those costs which are not associated with the manufacturing or production process, such as sales
commissions, sales salaries, accounting, finance, general management salaries and office supplies.
Page -14
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
By traceability:
Manufacturing costs are classified as either direct or indirect. Indirect costs are also known as overhead
or burden. Indirect costs are those costs which cannot be specifically associated with a particular cost
object (A cost object is any organizational or physical entity to which costs are assigned or charged. A cost
object might be a completed unit of product, a subassembly, a department, a worker in the department, a
product line, or en entire division of a larger corporation.) When we talk about manufacturing costs, the
typical cost object is a unit of output. Selling and administrative expenses may also be traced to products,
product lines, organizational units.
By relevance to the decision that we are making:
In many decision making situations, certain costs are irrelevant. Costs are irrelevant to a decision if the
don't change as a consequence of the decision.
Cost Data and Uses:
Page -15
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
The Chart of Accounts:
Chart of accounts is a list of the accounts used by
an organization.
The list can be numerical,
alphabetic, or alpha-numeric. The structure and
headings of accounts should assist in consistent
posting of transactions. Each nominal ledger
account is unique to allow its ledger to be located.
The list is typically arranged in the order of the
customary appearance of accounts in the financial
statements, profit and loss accounts followed by
balance sheet accounts.
Simple Chart of Accounts
Group headings - Sales, Cost of Goods Sold,
Direct Expenses, Administration Expenses, Selling
Expenses, Distribution Expenses, Establishment
Expenses, Financial Expenses
Within each of these headings will be the individual
nominal ledger accounts that make up the chart of
accounts. Establishment expenses may consist of
rent, rates, repairs
Balance Sheet Accounts
Asset Accounts: Cash, Bank Accounts, Accounts Receivable (Debtors), Prepaid Expenses, Inventory
(Stock on Hand), Land, Buildings, Vehicles & Equipment, Investments & Stocks, Accumulated
Depreciation and Other Assets
Liability Accounts: Accounts Payable (Creditors), Credit Cards, Tax Payable, Employment Expenses
Payable, Bank Loans,Stockholders' Equity Accounts: Common Stock (Share Capital), Retained Earnings
(Revenue Reserves), Drawings
Profit & Loss accounts
Revenue Accounts:Sales Revenue, Sales Returns & Allowances, Sales Discounts, Interest Income,
Cost of Goods Sold Accounts: Purchases and sales Expense All sales Expense Purchase Returns &
Allowances
Expense Accounts:Advertising Expense, Bank Fees, Depreciation Expense, Payroll Expense, Payroll
Tax Expense, Rent Expense, Income Tax Expense, Office Expense, Utilities Expense
Page -16
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
COST
CLOW / MOVEMENT
REPORTING
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INCOME
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STATEMENT
COST
Page -17
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Statement of Cost of Goods Manufactured and Sold;
Cost of goods manufactured and sold statement formulas:
Prime Cost = Direct Materials Cost + Direct Labor Cost
Total Factory Cost or Manufacturing Cost = Direct Materials + Direct Labor Cost + Factory Overhead
Conversion Cost = Direct Labor Cost + Factory Overhead Cost
Direct labor and factory overhead,
when added together, represent
the conversion cost. Direct labor and
factory overhead are called
conversion costs because they are
involved in converting raw materials
into finished goods.
Factory overhead is any
manufacturing cost that is not direct
materials or direct labor.
Cost of Goods Manufactured (COGM)
= Total Factory Cost + Opening Work in Process Inventory - Ending Work in Process Inventory
Or
Cost of Goods manufactured = Direct materials cost + Direct labor cost + Factory overhead cost
+ Opening work in process inventory - Ending work in process inventory
Cost of goods sold (COGS) = Cost of goods manufactured + Opening finished goods inventory
- Ending finished goods inventory
Or
Cost of goods sold = Direct materials cost + Direct labor cost + Factory overhead cost
+ Opening work in process inventory - Ending work in process inventory
+ Opening finished goods inventory - Ending finished goods inventory
Page -18
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Number of units manufactured = Units sold + Ending Finished Goods units - Opening finished goods
units
Per unit cost of goods manufactured = Cost of goods manufactured / Units manufactured
Materials used or consumed = Opening inventory or materials + Net purchases of materials
- Ending inventory of materials
Page -19
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Income statement: A financial statement that measures a company's financial performance over a
specific accounting period. Financial performance is assessed by giving a summary of how the business
incurs its revenues and expenses through both operating and non-operating activities. It also shows the
net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year. Also
known as the "profit and loss statement" or "statement of revenue and expense".
Income statement formulas:
Gross profit = Net sales - Cost of goods sold
Operating profit = Gross profit - Operating expenses
Operating or commercial expenses = Selling or marketing expenses + General or administrative
expenses
Per unit gross profit = Gross profit / No. of units sold
Per unit net profit = Net profit / No. of units sold
Percentage of Gross Profit to sales = (Gross profit / Net sales) × 100
Percentage of net profit to sales = (Net profit / Net sales) × 100
Page -20
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Problem No. 01 (Statement of Cost and Profit)
Monyem has a small cake shop and specializes in the making of small cake of standardsizes of which he
can make 30,000 a year, he made and sold 20,000 cakes and his cost per cake was Tk.110, made up as
under – (i) Materials Tk.60;
(ii) LabourTk.20 and
(iii) Overhead (Fixed)recovered at 50% of Material cost Tk.30.
Prices are fixed by adding a standard margin of 15% to the total cost arrived at as above. For the current
year, due to a fall in the cost of materials, total cost was determined at Tk.95 per cake asunder –
(i) Materials Tk.50;
(ii) Labour Tk. 20 and
(iii) Overhead (Fixed) recovered at 50% of Material cost Tk. 25.
Monyem maintained his standard margin at 10% of his total cost of sale. Sales were at the same level as
in the previous year.
You are required to –
(i) Determine profit and loss for the current year.
(ii) Compute the price that should have been charged in the current year to yield the same
profit as in previous year.
Problem No. 02 (Cost sheet)
MUTTAKKEN Ltd. gives the following information:
From financial records :
(i) Sales for the year…………………………………………………… Tk.100,00,000
(ii) Direct labour ………………………………………………………...
21,00,000
(iii) Management expenses……………………………………………
3,00,000
(iv) Selling expenses …………………………………………………..
5,00,000
From inventory records :
As on 31st December As on 1st January
(i) Raw materials…………………………………
(ii) Finished goods ……………………………..
(iii) W-I-P (50 % complete)…………………….
12,60,000
21,00,000
16,00,000
10,00,000
19,60,000
12,00,000
From analysis of past data :
(i) Direct labour would be 175% of works overheads.
(ii) Cost of Goods Sold (excluding Administration Overheads) would be Tk. 13,200, per unit
(iii) Selling expenses would be Tk. 1,000 per unit
You are required to : (i) Compute the value of materials purchased during the year.
(ii) Determine the rate of profit earned on sales.
(iii) Discuss whether interest payment of Tk. 3,50,000 on working capital would affect the above rate of
profit.
Page -21
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Solution of problem No. 01 (Statement of Cost and Profit)
Monyem
Statement of Cost and Profit
For the year ended xxxx
Particulars
Materials
Add:Labour
Prime cost …………………….
Add: Overheads
Total cost …………………….
Add: Profit
Sales ……………………………..
Last year
(20,000 Cakes)
Per
cake
Total
(Tk.)
(Tk.)
60.00
12,00,000
20.00
4,00,000
80.00
16,00,000
30.00
6,00,000
110.00
22,00,000
16.50
3,30,000
126.50
25,30,000
Last year
(20,000 Cakes)
Per
cake
Total
(Tk.)
(Tk.)
50.00
10,00,000
20.00
4,00,000
70.00
14,00,000
25.00
5,00,000
95.00
19,00,000
9.50
1,90,000
104.50
20,90,000
Remarks
Note : It is assumed that Monyem would have determined the Selling Price of the cake based on his cost
estimate of Tk. 95.00.
Ans. Profit for the current year isTk. 190,000
(ii) Computation the price that should have been charged in the current year to yield the same
profit as in previous year.
Required profit ……………………………………………………… Tk. 3,30,000
Add : Revised costs for the current year ………………………..
19,00,000
Desired sales revenue …………………………………………….
22,30,000 (for 20,000 cakes)
Hence, selling price per cake (Tk. 22,30,000 / 20,000 cakes)..Tk. 111.50
Page -22
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Solution of problem No. 02 (Cost sheet)
MUTTAKKEN Ltd.
Cost sheet
For the year ended 31st December
Particulars
given
given
Amount
(Tk.)
10,00,000
41,00,000
51,00,000
(12,60,000)
38.40,000
21,00,000
59,40,000
12,00,000
12,00,000
83,40,000
(16,00,000)
67,40,000
3,00,000
given
given
70,40,000
19,60,000
90,00,000
(21,00,000)
[see note (vi) ]
given
balancing figure
69,00,000
5,00,000
74,00,000
26,00,000
100,00,000
Computation
Opening stock of raw materials …………………………………..
Add : Purchases & carriage inwards …………………………….
Less : Closing stock of raw materials ………………………….
Direct materials consumed ….
Add : Direct labour ……………………………………………
PRIME COST ………….
Add : Factory overheads ……………………………………….
Opening stock of W-I-…………………………………….
given
balancing figure
given
given
21,00,000 ÷
175%given
Less : Closing stock of W-I-P ……………………………………
FACTORY COST / WORKS
COST
Add : Administration overheads (Management Exp.)…………..
COST OF PRODUCTION ….
Add : Opening stock of finished goods ……………………………
COST OF GOODS AVAILABLE FOR
SALE
Less : Closing stock of finished goods ……………………………..
COST OF GOODS SOLD ..
Add : Selling and Distribution overhead ……………………………
COST OF SALES ………..
Add : Profit/ Loss (Balancing figure) …………………………………
SALES ……………………………………………………………
Ans (i) the value of materials purchased during the year is Tk. 41,00,000
Notes :
(i) The cost sheet is completed by Reverse Working. Purchases amount is the balancing figure.
(ii) Direct labour = 175% of factory overhead (given). Hence, if direct labour = 21,00,000,
then Factory Overhead = 21,00,000 ÷ 175% = Tk.12,00,000
(iii) Selling Overhead = Tk. 1,000 per unit = Tk. 5,00,000 (in total).
So, Units sold = Tk. 5,00,000 ÷ Tk.1,000 = 500units.
(iv) Cost of Goods Sold (excluding Administrative Overhead) = Tk. 13,200 per unit
Cost of Goods Sold less Administrative Overhead = 13,200 per unit × 500 units = Tk. 66,00,000
Cost of Goods Sold – Tk. 3,00,000 =Tk. 66,00,000
Hence, Cost of Goods Sold = Tk. 69,00,000
Ans. (ii)
(v) Rate of profit = 26,00 ÷ 100,00 = 26%
Ans. (iii)
(vi) Interest on working capital shall not be considered as “Cost” since it may distort cost comparison.
However, for decision-making purposes, interest is an essential element of cost and has to be included to
determine relevant costs in a decision.
Page -23
Friday, March 06, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com