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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.