Cost Accounting
nd
(2
session)
Prof. Amit De
BASIC CONCEPT
OF
COST ACCOUNTING:
 Cost Accounting
 Cost Accounting and Financial
Accounting
DIFFERENT TYPES OF COST
 Direct cost
 Prime cost
 Indirect cost
 Fixed cost/Fixed overhead/Period
cost
 Variable cost
MATERIAL COSTING
STOCK LEVELS
► Maximum stock level.
Maximum level = Recording level + Recording quantity –
Min. consumption
= Recording level + Reordering quantity – { Min.
consumption per period x Min. Recording period }
► Minimum stock level.
Minimum Level = Reordering level – { Normal usage per
period x Average delivery time }
► Re-order level.
Re-order Level = maximum consumption during the period
x Maximum period required for delivery.
► Danger level.
ECONOMIC ORDER
QUANTITY. EOQ

Determination of EOQ by algebraic formula
EOQ =
2 x Annual consumption x Cost of
placing an order
Cost of carrying one unit inventory
for one year
LABOUR COSTING
 Methods of Remuneration
 Time Rate System
 Payment by Result
A. PIECE-RATE SCHEMES

Straight piece work system.
Wages = Number of units produced x
piece rate per unit
 Differential Piece Work System.
Taylor Differential rate System
80% of piece rate when below standard.
125% of piece rate when at or above standard.
MERRICK DIFFERENTIAL OR
MULTIPLE PIECE RATE SYSTEM
■ Up to 83-1/3%
Normal piece rate
applicable
■ Above 83-1/3%
10% above
normal rate
of efficiency
but up to 100%
■ Above 100%
20% above
normal rate
PREMIUM BONUS PLANS
 Halsey Plan.
Formula for Halsey Premium Plan under 50%
Sharing Scheme
Actual hrs. worked x Rate per hr. + 50/100
(Standard hrs. – Actual hrs.) x Rate per hour.
 Rowan Plan.
 Group Bonus System.
ELEMENTS OF OVERHEAD.
 Indirect material cost.
 Indirect labour cost.
 Indirect services cost.
MANUFACTURING
OVERHEAD
 Allocation.
 Apportionment.
 Primary distribution of overhead.
SECONDARY DISTRIBUTION
►
Methods of Redistribution.
1. Direct Redistribution Method.
2. Step Method.
3.
Reciprocal Service Method.
4. Trial and Error Method.
5. Repeated Distribution Method.
6. Simultaneous Equation Method.
OVERHEAD ABSORPTION
Overhead rate for the period
=
Amount of overhead for the period
Total number of units of base for the period
METHODS OF ABSORPTION
1. Production Unit Method.
2. Percentage on Direct Wages.
3. Percentage on Direct Material Cost.
4. Percentage of Prime Cost.
5. Direct Labour Hour Method.
6. Machine Hour Rate.