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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
102:
2: Cost Accounting
Course Teacher:
Md.Mon
Monowar Hossain MBA, FCMA, CPA, FCS, ACA
Consultant
Bangladesh
desh Securities and Exchange Commission (BSEC)
Cell: +8801714410824
Email: md.monowar@gmail.com
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Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
eMail: md.monowar@gmail.com
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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Subject Code :COA 102COST ACCOUNTING
Professional Level –I
102.Cost Accounting---100
Course Objectives : To provide the students with an in-depth knowledge of Cost Accounting concepts, principles and methods to
develop ability and skills to prepare and analyses Cost Accounting data to meet the requirements of different manufacturing
concerns. On completion of this course they will be able to:
a. discuss the role of cost accounting and quantitative analysis within the organization.
b. apply the principles relating to the costing and control of the different resource inputs into the business.
c. demonstrate costing methods and techniques appropriate to a variety of different business.
102.01 Introduction to Cost Accounting - Definition of Cost Accounting, Comparison of Cost Accounting and Financial
Accounting; The role of Cost Accounting; Cost Data for Management Purposes; Methods and Techniques of Cost Accounting;
Characteristics of an Ideal Cost Accounting System; Installation of a Cost Accounting System; Modern Trends in Cost Accounting.
102.02 Cost Concepts, Classifications and Statements- Cost Object; Expenditures, Cost, Expense and Loss; Cost
Classifications; Cost Data and Uses; The Chart of Accounts; Statement of Cost of Goods Manufactured and Sold; Income
Statement.
102.03 Costing and Control of Materials- Classification of Materials; Accounting for Materials; Pricing the Issue of Materials
Valuation of Inventory; Periodic Inventory System and Perpetual Inventory System; Inventory Planning; Ordering Cost, Holding
Cost and EOQ; Effect of Quantity Discounts on EOQ; Safety Stock and Reorder Point; Material Control Methods; Impact of JIT on
Inventory Accounting; Materials Requirement Planning System.
102.04 Costing and Control of Labour-Productivity and Labour Costs; Costs included in Labour; Accounting for Labour; Time
Keeping, Computation of total payroll and Allocation of Payroll costs; Journalizing Labour Costs; Special Problems Relating to
Accounting for Labour; Labour cost Control, Labour Turnover and Control of Labour Turnover; Learning Curve Theory.
102.05 Costing and Control of Manufacturing Overhead-Manufacturing Overhead Costs; Actual Vs. Normal Costing of
Manufacturing Overhead; Production Capacity, Predetermined Overhead Rates; Departmental vs. Plant-wise Overhead Rates;
Separating Mixed Costs. Scatter-graph; High-low Method and Regression Analysis; Accounting for Manufacturing Overhead;
Analysis and Disposition of Under-applied-and Over-applied Overhead.
102.06 Service Department Costs Allocation-Service department costs; Volume based costing; Need for cost allocation;
Guidelines for cost allocation; Plant-wise rate vs. departmental rates; Cost allocation methods; Direct method; Step method;
Reciprocal method and linear algebra method; Single and dual rate methods; Determination of costs should be allocated-budgeted
or actual.
102.07 Activity-Based Costing (ABC) - The Contemporary Manufacturing Environment; Limitation of Traditional Costing
Systems; ABC Defined; Identifying Activities that Use Resources; Cost Drivers and Choosing Cost Drivers; Assigning Costs Using
Activity-Based Costing-Benefits of ABC; Criticism of ABC; ABC and strategic Cost Management.
102.08 Cost Accumulation System- Objective of Cost Accumulation; Cost Accumulation Periodic vs. Perpetual; Cost
Accumulation-Actual vs. Standard; Periodic an Perpetual Cost Accounting System; The Factory Ledger.
102.09 Job Order Cost System - Job Order Costing; Job Order Cost System-Illustrated; Spoiled Goods; Defective Goods; Scrap
materials and Waste Materials in a Job order Cost System.
102.10 The Nature and Characteristics of process Cost System- Process Costing Defined; Objective of Process Cost System;
Characteristics of a Process Cost System; Comparison of Job Order and Process Cost Accumulation System; Production by
Department; System Flow; Determination of Equivalent Units; The Cost of Production Report.
Tex Books
1.
Cost Accounting – Ralph S. Polimeni, Frank Fabozzi and Arthur H. Adelherg (3rd edition).
2.
Cost Accounting – F. Usry& H. Hammer (13th edition).
Reference Books
1.
Cost Accounting L. Gayle Rayburn (6th edition).
2.
Cost Management – Blocher, Chen & Lin (1st edition).
3.
Cost Accounting – C. T. Horngren& Others (11th edition).
Page -2
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Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
eMail: md.monowar@gmail.com
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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Subject Code :COA 102 COST ACCOUNTING
(ONE PAPER - 3 HOURS - 100 MARKS)
Professional Level –I
Class Plan
No. Class
(3 hours
per class)
1
2
Course Contents
Introduction and describe career plan with long vision
102.01
Introduction to Cost
Accounting
-Definition of Cost Accounting,
-Comparison of Cost Accounting and Financial Accounting;
-The role of Cost Accounting;
-Cost Data for Management Purposes;
-Methods and Techniques of Cost Accounting;
-Characteristics of an Ideal Cost Accounting System;
-Installation of a Cost Accounting System;
-Modern Trends in Cost Accounting.
102.02
Cost Concepts,
Classifications and
Statements
-Cost Object;
-Expenditures,
-Cost,
-Expense and Loss;
-Cost Classifications;
-Cost Data and Uses;
-The Chart of Accounts;
-Statement of Cost of Goods Manufactured and Sold;
-Income Statement.
3& 4
102.03
Costing and
Control of Materials
5&6
102.04
Costing and Control
of Labour
-Classification of Materials;
-Accounting for Materials;
-Pricing the Issue of Materials Valuation of Inventory;
-Periodic Inventory System and Perpetual Inventory System;
-Inventory Planning;
-Ordering Cost,
-Holding Cost and EOQ;
-Effect of Quantity Discounts on EOQ;
-Safety Stock and Reorder Point;
-Material Control Methods;
-Impact of JIT on Inventory Accounting;
-Materials Requirement Planning System.
-Productivity and Labour Costs;
-Costs included in Labour;
-Accounting for Labour;
-Time Keeping,
-Computation of total payroll and Allocation of Payroll costs;
-Journalizing Labour Costs;
-Special Problems Relating to Accounting for Labour;
-Labour cost Control,
-Labour Turnover and Control of Labour Turnover;
-Learning Curve Theory.
Page -3
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Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
eMail: md.monowar@gmail.com
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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
7&8
102.05
Costing and Control
of Manufacturing
Overhead
9
102.06
Service Department
Costs Allocation
10
102.07
Activity-Based
Costing (ABC)
11
102.08
Cost Accumulation
System
12
102.09
Job Order Cost
System
13
14
15
102.10
The Nature and
Characteristics of
process Cost
System
-Manufacturing Overhead Costs;
-Actual Vs. Normal Costing of Manufacturing Overhead;
-Production Capacity, -Predetermined Overhead Rates;
-Departmental vs. Plant-wise Overhead Rates;
-Separating Mixed Costs.
-Scatter-graph;
-High-low Method and Regression Analysis;
-Accounting for Manufacturing Overhead;
-Analysis and Disposition of Under-applied-and Over-applied Overhead.
-Service department costs;
-Volume based costing;
-Need for cost allocation;
-Guidelines for cost allocation;
-Plant-wise rate vs. departmental rates;
-Cost allocation methods;
-Direct method;
-Step method;
-Reciprocal method and linear algebra method;
-Single and dual rate methods;
-Determination of costs should be allocated-budgeted or actual.
-The Contemporary Manufacturing Environment;
-Limitation of Traditional Costing Systems;
-ABC Defined;
-Identifying Activities that Use Resources;
-Cost Drivers and Choosing Cost Drivers;
-Assigning Costs Using Activity-Based Costing-Benefits of ABC;
-Criticism of ABC;
-ABC and strategic Cost Management.
-Objective of Cost Accumulation;
-Cost Accumulation Periodic vs. Perpetual;
-Cost Accumulation-Actual vs. Standard;
-Periodic an Perpetual Cost Accounting System;
-The Factory Ledger.
-Job Order Costing;
-Job Order Cost System-Illustrated;
-Spoiled Goods;
-Defective Goods;
-Scrap materials and Waste Materialsin a Job order Cost System.
-Process Costing Defined;
-Objective of Process Cost System;
-Characteristics of a Process Cost System;
-Comparison of Job Order and Process Cost Accumulation System;
-Production by Department;
-System Flow;
-Determination of Equivalent Units;
-The Cost of Production Report.
Review &
Class Test –I
Class Test –II
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Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
eMail: md.monowar@gmail.com
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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
CMA
Professional Level –I
102: Cost Accounting
Class
No. 1
102.01
Introduction to
Cost Accounting
-Definition of Cost Accounting,
-Comparison of Cost Accounting and Financial Accounting;
-The role of Cost Accounting;
-Cost Data for Management Purposes;
-Methods and Techniques of Cost Accounting;
-Characteristics of an Ideal Cost Accounting System;
-Installation of a Cost Accounting System;
-Modern Trends in Cost Accounting.
Definition of Cost Accounting:
The process of identifying and evaluating production costs.
System for recording and reporting measurements of the cost of manufacturing goods and
performing services in the aggregate and in detail. It includes methods for reorganizing,
classifying, allocating, aggregating, and reporting actual costs and comparing them with standard
costs. Determination of unit cost to make a product or render a service is needed to establish a
selling price or fee to be charged. Also, costs for manufacturing a product for inventory valuation
need to be known to prepare the balance sheet and income statement. Cost accounting systems
include job order, process, standard, and direct costing.
Branch of accounting concerned with providing the information that enables the management of a
firm to evaluate production costs.
-5
AccountingPage
Systems
Linkages
Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
eMail: md.monowar@gmail.com
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lOMoARcPSD|4659041
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Objectives of Cost Accounting:
1. Cost Ascertainment
2. Determining Selling Price
3. Cost Control
4. Cost Reduction
5. Determining and Controlling Efficiency
6. Facilitating Preparation of Financial and Other Statements
7. Providing Basis for Operating Policy
Importance of Cost Accounting :
The importance of cost accounting can be highlighted through the following benefits which accrue
to any business concern:
Cost accounting enables the management
1. Control of Material Cost
to take up various strategic decisions like
2. Control of Labour Cost
"Make or Buy", "Shut down or Continue",
3. Control of Overheads
"Replace or Continue", " Status quo or
4. Determination of Selling Price
Expansion" etc.
5. Budgeting
6. Measuring Efficiency
7. Strategic Decision-making
The management information system provides information to assist management with planning, control and
decision-making.
Cost Accounting
Process
Cost
Accounting
Information
Cost Accounting in Decision Making
Advantages of Cost Accounting :
(i) Helps optimum utilization of men, materials and machines
(ii) Identifies areas requiring corrective action
(iii) Identifies unprofitable activities, losses, inefficiencies
(iv) Helps price fixation
(v) Facilitates cost control and cost reduction
(vi) Facilitates use of various cost accounting techniques, like, variance analysis, value
analysis etc.
(vii) Helps management in formulation of policies
(viii)Helps management in making strategic financial decisions. For eg: the technique of
marginal costing helps the management in making various short term decisions.
Page -6
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Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
eMail: md.monowar@gmail.com
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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
(ix) Helps in formation of costt c
centres and responsibility centres to exercise
e control
c
(x) Marginal Cost having a linea
ear relationship with production volume enables in formulation
f
and solution of "Linear Programm
mming Problems".
(xi) Provides a data-base for ref
reference by government, wage tribunals and trade
e unions etc.
Limitations of Cost Accounting :
i. It is not an exact science a
and involves inherent element of judgment.
ii. Cost varies with purpose.. T
Therefore cost collected for one purpose will nott be
b suitable for
another purpose.
iii. Cost accounting presents th
the base for taking the best decisions. It does not give
g
an
outright solution .
iv. Most of the cost accounting
g techniques are based on some pre-assumed not
otions.
v. The apportionment of com
mmon costs comes under a lot of criticism.
vi. There are different views h
held by different experts on the treatment of certain
ain items of
cost.
Question-1 : Briefly discuss, how th
the synergetic effect help in reduction in costs.
Answer-1 : Two or more products
cts are produced and managed together. The results
lts of combined efforts
are higher than sum of the results of individual products. Analysis of synergetic effect
ct is helpful in cost
control.
Question-2 : What are the main obj
bjectives of cost accounting?
Answer -2 : The Main objectives o
of Cost Accounting are
1. Ascertainment off co
cost.
2. Determination of se
selling price.
3. Cost control and co
cost reduction.
4. Ascertaining the pr
project of each activity.
5. Assisting managem
ement in decision-making.
6. Determination of br
break- even point, etc.
Financial Accounting
for
External Report
orting
Cost and Management Accounting
for
Internal Reporti
rting
Page -7
Friday, February 27, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
eMail: md.monowar@gmail.com
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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Comparison of Cost Accounting and Financial Accounting:
No.
Basis
Financial Accounting
1.
Objective
Financial
position
2.
Costs and profits
Shows overall costs and profit /
loss
Shows details for each product,
process, job, contract, etc
3.
Control / Report
Emphasis on reporting
Emphasis
reporting
4.
Decision making
Limited use
Designed for decision making
5.
Responsibility
Does not fix responsibility
Can effectively fix responsibility
6.
Time frame
Focus on historical data
Focus on present and future
7.
Type of reports
General reports like P&L
Account, Balance Sheet, Cash
Flow Statement
Can generate special reports
and analysis
8.
Legal need
Statutory requirement
Voluntary,
cases
9.
Transactions
Records external transactions
Records internal and external
transactions
10.
Reader
Everybody
Internal management
11.
Formats
Standard, as per law
Tailor made
12.
Access
Everybody, except for some
Very limited access
13.
Unit of value
Monetary
Monetary and physical
performance
Cost Accounting
and
Ascertain cost and cost control
on
control
except
for
and
some
Cost Accounting Flow:
Page -8
Friday, February 27, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
eMail: md.monowar@gmail.com
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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Cost Data for Management Purposes:
Page -9
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Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Methods and Techniques of Cost Accounting:
The Methods of Cost Accounting
1. Job Costing
2. Process Costing
3. Farm
Costing
1.1 Batch Costing
1.2 Terminal or Contract Costing
1.3 Multiple or Composite Costing
2.1 Signal or Output Costing
2.2 Operation Costing
2.3 Operating Costing
Activity Based
Costing
Methods
Job Order
Costing
Process
Costing
Costing
Absorption
Costing
Concepts
The Techniques of Cost Accounting
Direct Costing
Following are the main types or techniques of
costing for ascertaining costs:
No.
Costing Technique
Description
1.
Marginal Costing
Charging variable costs to operations, processes or products
and writing off all fixed costs against profits in the period in
which they arise.
2.
Direct Costing
Charging all direct costs to operations, processes or products
and writing off all indirect costs against profits in the period in
which they arise.
Absorption Costing
Charging all variable costs and fixed production overheads to
operations, processes or products and writing off selling,
distribution and administration overheads against profits in the
period in which they arise.
4.
Uniform Costing
Using the same costing principles and / or practices by a
number of firms in the same industry. Helps in inter-firm
comparison, price fixation, cost control / reduction and seeking
government tax relief / protection.
5.
Standard Costing
System which involves fixation of cost standards, ascertain
variances of actual cost with standard cost, variance analysis
and presentation for corrective action and decision making.
6.
Budgetary Control
System which involves establishment of budgets, comparison
of actual with budget, variance analysis and corrective action.
7.
Historical Costing
Actual cost ascertained after it has been incurred.
3.
Page -10
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Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Characteristics of an Ideal
al Cost Accounting System:
Installation of a Cost Acco
counting System:
Before installing a costing sy
system have to consider the following ….
1.
2.
3.
4.
Consideration of the size, lay
layout and nature of the undertaking
Study of the production natu
ture, methods and stage
Study of the organizationall a
activities
Study of the present departm
rtments and their work
Modern Trends in Cost Ac
ccounting:
-
The general framework off cost-accounting system
-
The main structure of the
es
system of cost accounting
-
Costing – measurement pu
purposes: Methods of measuring the cost. The basis
ba of measuring the
cost of marketing. Ways to
o lo
load costs.
-
Costing – measurement pu
purposes: different theories of cost: cost statemen
ent and methods of
preparation - Total cost state
atement. - Variable cost statement. - Cost statemen
ent according to utilized
power, according to the rate
tes of achievement.
-
Cost: control purposes: St
Standard costing system for the control of costs - Ways
W
of setting
standards and methods off st
standard cost.
Page -11
Friday, February 27, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
eMail: md.monowar@gmail.com
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Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
-
Cost: control purposes: Responsibility accounting and its role in cost control:The concept of
responsibility accounting. - Key success factors of responsibility accounting system in controlling.
Criteria for evaluating the performance of responsibility centers.
-
Cost – the purposes of decision-making: Using the classification of costing in analyzing the
draw - Using the classification of costing in analysis of symmetry. -Using the classification of
costing in various administrative decisions
-
Cost – Preparing planning budgets: - The role of costing in the preparation of the fixed budget The role of costing in the preparation of the flexible budget . -The relationship between the cost
structure and risk - Recent Trends of control and cost reduction
-
Cost in the investment decision: -The concept of cost of capital owned. -The concept of
weighted cost of funds. -Methods for calculating the cost of depreciation of capital assets. Workshop and public debates
The Bangladesh Cost Accounting Standards:
BCAS -1
BCAS-2
BCAS-3
BCAS-4
BCAS-5
BCAS-6
BCAS-7
BCAS-8
BCAS-9
BCAS-10
Cost Concept and Classification
Cost Estimation
Cost Allocation Bases
Indirect Costs
Indirect Costing Rates
Support Department Costs
Job Order Costing
Process Costing
Joint Cost
Target Costing
……………….
……………
……
Page -12
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Md.Monowar Hossain FCMA,CPA,FCS, ACA
Consultant, SEC
eMail: md.monowar@gmail.com
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