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Cost Accounting

Book Description

Cost Accounting is designed to provide essential skill sets to managers for planning and controlling their business financials. Covering a wide range of topics, this book is suitable for both undergraduate and postgraduate students of business study courses offered by universities across India. It also meets the requirement of the students of CA, ICWA and CS.

Table of Contents

  1. Cover
  2. Title Page
  3. Brief Contents
  4. Contents
  5. About the Author
  6. Dedication
  7. Preface
  8. 1. Overview of Cost Accounting
    1. 1.1 Introduction
    2. 1.2 Evolution of CA
      1. 1.2.1 Cost
      2. 1.2.2 Costing
      3. 1.2.3 CA
    3. 1.3 Objectives of CA
    4. 1.4 Advantages of CA
    5. 1.5 Limitations of CA
    6. 1.6 Importance of CA to Business Concerns
    7. 1.7 Essentials of a Good CA System
    8. 1.8 CA Versus FA
      1. 1.8.1 A Short Summary of the Differences between CA and FA
    9. Chapter Summary
    10. Exercise for Your Practice
    11. Discussion Questions
  9. 2. Basic Concepts of Cost
    1. 2.1 Introduction
    2. 2.2 Cost Concepts and Terms
    3. 2.3 Elements of Cost
      1. 2.3.1 Direct Material
      2. 2.3.2 Direct Labour
      3. 2.3.3 Direct Expenses
      4. 2.3.4 Indirect Material
      5. 2.3.5 Indirect Labour
      6. 2.3.6 Indirect Expenses
    4. 2.4 Overheads
      1. 2.4.1 Factory/Works Overheads
      2. 2.4.2 Office and Administrative Overheads
      3. 2.4.3 Selling and Distribution Overheads
    5. 2.5 Classification of Costs
    6. 2.6 Types of Costing
    7. 2.7 Methods of Costing
      1. 2.7.1 Cost Unit
      2. 2.7.2 Cost Centre
      3. 2.7.3 Profit Centre
    8. Chapter Summary
    9. Exercise for Your Practice
    10. Discussion Questions
  10. 3. Cost Sheet/Statement of Cost
    1. 3.1 Introduction
    2. 3.2 Features of a Cost Sheet
    3. 3.3 Items not Included in Total Costs (Non-Cost Items)
    4. 3.4 Format of a Simple Cost Sheet
    5. 3.5 Advanced-Type Solved Problems
    6. Chapter Summary
    7. Exercise for Your Practice
    8. Discussion Questions
    9. Problems
    10. Examination Problems
  11. 4. Material Control/Inventory Control
    1. 4.1 Introduction
    2. 4.2 Objectives of Material Control
      1. 4.2.1 Essentials of a Good Material Control System
    3. 4.3 Requirements of Material Control
    4. 4.4 Duties of a Storekeeper
    5. 4.5 Levels of Stock
      1. 4.5.1 Minimum Stock Level
      2. 4.5.2 Maximum Stock Level
      3. 4.5.3 Reorder Level
      4. 4.5.4 Danger Level
      5. 4.5.5 Average Stock Level
    6. 4.6 Economic Order Quantity
      1. 4.6.1 How Does EOQ Work?
      2. 4.6.2 How to Calculate EOQ?
    7. 4.7 ABC Analysis
    8. 4.8 Just-in-Time Analysis—the Origin
    9. 4.9 VED Analysis
    10. 4.10 Perpetual Inventory System
    11. 4.11 Periodic Inventory System
    12. 4.12 Stock/Material Turnover Ratio
    13. 4.13 Advanced-Type Solved Problems
    14. Chapter Summary
    15. Key Formulae
    16. Exercise for Your Practice
    17. Discussion Questions
    18. Problems
    19. Examination Problems
  12. 5. Pricing of Materials
    1. 5.1 Introduction
    2. 5.2 FIFO (First in First Out)
    3. 5.3 LIFO (Last in First Out)
    4. 5.4 Simple Average Method
    5. 5.5 Weighted Average Method
    6. 5.6 Advanced-Type Solved Problems
    7. Chapter Summary
    8. Exercise for Your Practice
    9. Discussion Questions
    10. Problems
    11. Examination Problems
  13. 6. Labour
    1. 6.1 Introduction
    2. 6.2 Labour Cost
    3. 6.3 Important Factors For Controlling Labour Cost
    4. 6.4 Distinction between Direct and Indirect Labour Costs
    5. 6.5 Labour Turnover
      1. 6.5.1 Internal Versus External Turnover
      2. 6.5.2 Voluntary Versus Involuntary Turnover
      3. 6.5.3 Causes of Labour Turnover
      4. 6.5.4 Effects of Labour Turnover
      5. 6.5.5 Costs of Labour Turnover
      6. 6.5.6 Benefits of Labour Turnover
      7. 6.5.7 Measurement of Labour Turnover
    6. 6.6 Time and Motion Study
      1. 6.6.1 Time Study
      2. 6.6.2 Motion Study
      3. 6.6.3 Merits of Time and Motion Studies
    7. 6.7 Time Wage System
      1. 6.7.1 Merits of Time Wage System
      2. 6.7.2 Demerits of Time Wage Payment
    8. 6.8 Piece Wage System
      1. 6.8.1 Advantages of the Piece Wage System
      2. 6.8.2 Disadvantages of the Piece Wage System
    9. 6.9 Straight Piece-Rate System
    10. 6.10 Differential Piece-Rate System (or Taylor's Plan)
      1. 6.10.1 Advantages of the Differential Piece-Rate System
      2. 6.10.2 Disadvantages of the Differential Piece-Rate System
    11. 6.11 Merrick's Multiple Piece-Rate Plan
      1. 6.11.1 Advantages of Merrick's Multiple Piece-Rate Plan
      2. 6.11.2 Disadvantages of Merrick's Multiple Piece-Rate Plan
    12. 6.12 Gantt's Task and Bonus Wage Plan
      1. 6.12.1 Advantages of Gantt's Plan
      2. 6.12.2 Disadvantages of Gantt's Plan
    13. 6.13 Halsey's Premium Plan
      1. 6.13.1 Advantages of Halsey's Premium Plan
      2. 6.13.2 Disadvantages of Halsey's Premium Plan
    14. 6.14 Rowan's Plan
      1. 6.14.1 Advantages of Rowan's Plan
      2. 6.14.2 Disadvantages of Rowan's Plan
    15. 6.15 Emerson's Efficiency Plan
      1. 6.15.1 Advantages of Emerson's Efficiency Plan
      2. 6.15.2 Disadvantages of Emerson's Efficiency Plan
    16. 6.16 Advanced-Type Solved Problems
    17. Chapter Summary
    18. Key Formulae
    19. Exercise for Your Practice
    20. Discussion Questions
    21. Problems
    22. Examination Problems
  14. 7. Overheads Analysis
    1. 7.1 Introduction
    2. 7.2 Overhead Costs
      1. 7.2.1 Definition of Overhead Costs
    3. 7.3 Classification of Overheads
      1. 7.3.1 Functional Classification
      2. 7.3.2 Element-wise Classification
      3. 7.3.3 Behaviour-wise Classification
    4. 7.4 Allocation of Overheads
    5. 7.5 Apportionment of Overheads
    6. 7.6 Allocation Versus Apportionment
    7. 7.7 Bases for Apportionment
    8. 7.8 Primary Distribution of Overheads
    9. 7.9 Secondary Distribution of Overheads
    10. 7.10 Step Method
    11. 7.11 Reciprocal Method
      1. 7.11.1 Simultaneous Equations Method
      2. 7.11.2 Repeated Distribution Method
      3. 7.11.3 Trial-and-Error Method
    12. 7.12 Advanced-Type Solved Problems
    13. Chapter Summary
    14. Key Formulae
    15. Exercise for Your Practice
    16. Discussion Questions
    17. Problems
    18. Examination Problems
  15. 8. Overhead Rates
    1. 8.1 Introduction
    2. 8.2 Absorption of Overheads
      1. 8.2.1 Underabsorption of Overheads and Overabsorption of Overheads
    3. 8.3 Machine Hour Rate
      1. 8.3.1 The Advantages of MHR
      2. 8.3.2 Ordinary MHR
      3. 8.3.3 Composite MHR
      4. 8.3.4 Disadvantages of MHR
      5. 8.3.5 Computation of MHR
    4. 8.4 Miscellaneous Illustrations
    5. 8.5 Advanced-Type Solved Problems
    6. Chapter Summary
    7. Exercise for Your Practice
    8. Discussion Questions
    9. Problems
    10. Examination Problems
  16. 9. Reconciliation of Cost and Financial Accounts
    1. 9.1 Introduction
    2. 9.2 Reasons for Disagreement in Profit
    3. Chapter Summary
    4. Key Formulae
    5. Exercise for Your Practice
    6. Discussion Questions
    7. Problems
  17. 10. Contract Costing
    1. 10.1 Introduction
    2. 10.2 Meaning of Contract Costing
      1. 10.2.1 Accounting Procedure of Contract Costing
      2. 10.2.2 Treatment of Profit on Incomplete Contract
      3. 10.2.3 Contract Lasting for More Than One Year
    3. Chapter Summary
    4. Key Formulae
    5. Exercise for Your Practice
    6. Discussion Questions
    7. Problems
    8. Examination Problems
  18. 11. Service Costing/Operating Costing
    1. 11.1 Introduction
      1. 11.1.1 When is Operation Costing Appropriate?
      2. 11.1.2 Cost Units Used in Service Costing
      3. 11.1.3 Transport Costing
      4. 11.1.4 Hospital Costing
      5. 11.1.5 Hotel Costing
      6. 11.1.6 Canteen Costing
    2. 11.2 Advanced-Type Solved Problems
    3. Chapter Summary
    4. Exercise for Your Practice
    5. Discussion Questions
    6. Problems
  19. 12. Process Costing
    1. 12.1 Introduction
    2. 12.2 Advantages and Disadvantages of Process Costing
      1. 12.2.1 Advantages of Process Costing
      2. 12.2.2 Disadvantages of Process Costing
    3. 12.3 Industries where Process Costing is Applied
    4. 12.4 Characteristic Features of Process Costing
    5. 12.5 Accounting Procedure of Process Costing
    6. 12.6 Normal Loss
    7. 12.7 Abnormal Loss
    8. 12.8 Abnormal Gain
    9. 12.9 Treatment of Normal Process Loss, Abnormal Process Loss and Abnormal Gain
    10. 12.10 Job Costing Versus Process Costing
    11. 12.11 Interprocess Profits and their Accounting Procedure
      1. 12.11.1 Interprocess Profits
      2. 12.11.2 Accounting Procedure for Interprocess Profit
    12. 12.12 Equivalent Production
    13. 12.13 Joint Products and By-Products
      1. 12.13.1 Features of Joint Products
      2. 12.13.2 By-products
      3. 12.13.3 Difference between By-products and Joint Products
    14. 12.14 Split-Off Point/Separation Point
    15. 12.15 Joint Costs
    16. 12.16 Separation Costs
    17. 12.17 Difficulties in Costing Posed By-products and Joint Products
    18. Physical Units Method
    19. Reverse Cost/Net Realizable Value Method
    20. Chapter Summary
    21. Exercise for Your Practice
    22. Discussion Questions
    23. Problems
    24. Joint Products and By-products
  20. 13. Marginal Costing
    1. 13.1 Introduction
    2. 13.2 Features of Marginal Costing
    3. 13.3 Limitations of Marginal Costing
    4. 13.4 Two Underlying Principles in Marginal Costing
    5. 13.5 Basic Terms Used in Marginal Costing
    6. 13.6 Important Formulae Used in Marginal Costing
    7. Contribution
    8. Break-Even Analysis
    9. 13.7 Applications of Marginal Costing
      1. 13.7.1 Profit Planning
      2. 13.7.2 Evaluation of Performance of a Concern
      3. 13.7.3 Fixation of Selling Prices
      4. 13.7.4 Selection of a Suitable Product Mix
      5. 13.7.5 Maintaining a Desired Level of Profits
      6. 13.7.6 Comparing Alternative Methods of Production
      7. 13.7.7 Deciding Among Alternative Courses of Action
    10. Make or Buy Decision
    11. Plant Merger Decision
    12. Product Mix or Sales Mix
    13. Elimination of a Product or Department
    14. Fixation of Selling Price
    15. Profit Planning
    16. Introduction of a New Product
    17. Alternative Method of Production
    18. Advanced Sums with Answer
    19. Chapter Summary
    20. Key Formulae
    21. Exercise for Your Practice
    22. Additional Exercises
    23. Discussion Questions
  21. 14. Budgetary Control
    1. 14.1 Introduction
    2. 14.2 Meaning of Budget
    3. 14.3 Purposes of Budgeting
    4. 14.4 Salient Features of the Budgetary Control System
      1. 14.4.1 Advantages of the Budgetary Control System
      2. 14.4.2 Limitations of the Budgetary Control System
      3. 14.4.3 Budget Period
    5. 14.5 Different Types of Budgets
      1. 14.5.1 Fixed Budgets
      2. 14.5.2 Flexible Budget
      3. 14.5.3 Need for Flexible Budgets
      4. 14.5.4 Functional Budgets
    6. 14.6 Budget Ratios
      1. 14.6.1 Capacity Usage Ratio
      2. 14.6.2 Standard Capacity Employed Ratio
      3. 14.6.3 Level of Activity Ratio
      4. 14.6.4 Efficiency Ratio
      5. 14.6.5 Calendar Ratio
    7. 14.7 Zero-Base Budgeting
    8. Chapter Summary
    9. Key Formulae
    10. Exercise for Your Practice
    11. Discussion Questions
    12. Problems
    13. Examination Problems
  22. 15. Standard Costing
    1. 15.1 Introduction
    2. 15.2 Advantages of Standard Costing
    3. 15.3 Limitations of Standard Costing
    4. 15.4 Material Variance
    5. 15.5 Labour Variance
    6. 15.6 Wages Revision Variance
    7. 15.7 Overhead Cost Variance
      1. 15.7.1 Variable Overhead Variance
      2. 15.7.2 Fixed Overhead Variance
    8. 15.8 Sales Variance
      1. 15.8.1 Profit Method of Calculating Sales Variances
      2. 15.8.2 Value Method of Calculating Sales Variances
    9. 15.9 Material Variances
    10. Chapter Summary
    11. Key Formulae
    12. Exercise for Your Practice
    13. Discussion Questions
    14. Problems
  23. Acknowledgments
  24. Copyright