cap piyush pushneet, riti , sameer
TRANSCRIPT
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
1/22
CAP ASSIGNMENT 1
SUBMITTED BY:
PIYUSH PATEL
PUSHNEET SHAHDRA
RITI M
SAMEER PAURIYAL
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
2/22
MEANING OF COST
COST represents a sacrifice of values, a foregoing or a release of something of value. It
is the price of economic resources used as a result of producing or doing the thing costed. It isthe amount of expenditure incurred on a given thing. Cost has been defined as the amount
measured in money or cash expended or other party transferred, capital stock issued, services
performed or a liability incurred in consideration of goods and serviced received or to be
received. By cost, we mean the actual cost i.e. historical cost. ICWA (UK) defines cost as the
amount of expenditure (actual or notional) incurred on, or attributable to a specified thing or
activity.
CLASSIFICATION OF COST
Cost classification is the process of grouping costs according to their common features.
Costs are to be classified in such a manner that they are identified with cost center or cost unit.
ON THE BASIS OF BEHAVIOUR OF COST
Behavior means change in cost due to change in output. On the basis of behavior cost is
classified into the following categories:
FIXED COST
It is that portion of the total cost which remains constant irrespective of the output upto
capacity limit. It is called as a period cost as it is concerned with period. It depends upon the
passage of time. It is also referred to as non-variable cost or stand by cost, capacity cost orperiod cost. It tends to be unaffected by variations in output. These costs provide conditions
for production rather than costs of production. They are created by contractual obligations and
managerial decisions. Rent of premises, taxes and insurance, staff salaries constitute fixed cost.
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
3/22
VARIABLE COST
This cost varies according to the output. In other words, it is a cost which changes accordingto the changes in output. It tends to vary in direct proportion to output. If the output is
decreased, variable cost also will decrease. It is concerned with output or product. Therefore, it
is called as a product cost. If the output is doubled, variable cost will also be doubled. For
example, direct material, direct labour, direct expenses and variable overheads. It is shown in
the diagram below.
SEMI-VARIABLE COST
This is also referred to as semi-fixed or partly variable cost. It remains constant up to a
certain level and registers change afterwards. These costs vary in some degree with volume but
not in direct or same proportion. Such costs are fixed only in relation to specified constant
conditions. For example, repairs and maintenance of machinery, telephone charges,
professional tax, etc.
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
4/22
ON THE BASIS OF ELEMENTS OF COST
Elements means nature of items. A cost is composed of three elements, material, labour and
expenses. Each of these elements can be direct and indirect.
DIRECT COST
It is the cost which is directly chargeable to the product manufactured. It is easily
identifiable. Direct cost consists of three elements which are as follows:
y DIRECT MATERIAL
It is the cost of basic raw material used for manufacturing a product. It becomes a
part of the product. No finished product can be manufactured without basic raw
materials. It is easily identifiable and chargeable to the product. For example, leather in
leatherwares, pulp in paper, steel in steel furniture, sugarcane for sugarcane etc. what is
raw material for one manufacturer might be finished product for another. Direct
material includes the following:
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
5/22
1. All materials specially purchased for production or the process.2. All components purchased for production or the process.3. Material transferred from one cost center to another or one process to another.4. Primary packing materials, wrappings, cardboard boxes etc, necessary for
preservation or protection of product.
Some of the items like nails or thread in the store are a part of finished product. They
are not treated as direct materials in view of negligible cost.
y DIRECT LABOUR OR DIRECT WAGES
It is the amount paid to those workers who are engaged in the manufacturing line for
conversion of raw materials into finished goods. The amount of wages can be easilyidentified and directly charged to the product. These workers directly handle raw
materials, work in progress and finished goods on the production line. Wages paid to
the workers operating lathes, drilling, cutting machines etc are direct wages. Direct
wages are also as productive labour, process labour or prime cost labour.
Direct wages include the payment made to the following group of workers:
1. Labour engaged on the capital production of the product.2. Labour engaged in aiding the operations viz. Supervisor, Foreman, Shop clerks
and Worker on internal transport.
3. Inspectors, Analysts needed for such production.
y DIRECT EXPENSES OR CHARGEABLE EXPENSES
It is the amount of expenses which is directly chargeable to the product manufactured
or which may be allocated to product directly. It can be easily identified with the product.
For example, hire charges of a special machine used for manufacturing a product, cost of
designing the product, cost of patterns, architects fees/surveyors fees, or job cost of
experimental work carried out especially for a job etc. Cost of special drawings, cost of
special layout designs, patents, patterns, cost of models, surveyors fees, Excise duty, royaltyon production, cost of rectifying defective work. Utility of such expenses is exhausted on
completion of job.
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
6/22
y INDIRECT COST
It is that portion of the total cost which cannot be identified and charged directly to the
product. It has to be allocated and apportioned and absorbed over the units manufactured on a
suitable basis. It consists of the following three elements:
y INDIRECT MATERIAL
It is the cost of the material other than direct material which cannot be charged to the
product directly. It cannot be treated as a part of the product. It is also known as expenses
materials. It is the material which cannot be allocated to the product but which can be
apportioned to the cost units. Examples are as follows:
1. Lubricants, cotton waste, oil, grease, stationery etc2. Small tools for general use3. Some minor items such as thread in dress making, cost of nails in shoemaking etc
y INDIRECT LABOUR
It is the amount of wages paid to those workers who are not engaged on the
manufacturing line, for example, wages of workers in administration department, watch n ward
department, sales department, general supervision.
y INDIRECT EXPENSES
It is the amount of expenses which is not chargeable to the product directly. It is the
cost of giving service to the production department. It includes factory expenses, administrative
expenses, selling and distribution expenses etc.
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
7/22
y OVERHEADS OR ON COST OR BURDEN OR SUPPLEMNTARY COST
Aggregate of indirect cost is referred to as overheads. It arises as a result of overall
operation of a business. According to Weldon overheads mean, the cost of indirect
material, indirect labour and such other expenses, including services as cannot convenientlybe charged direct to specific cost units. It includes all manufacturing and non-
manufacturing supplies and services.
These costs cannot be associated with a particular product. The principal feature of
overheads is the lack of direct traceability to individual product. It remains relatively
constant from period to period. The amount of overheads is not directly chargeable i.e. it
has to be properly allocated, apportioned and absorbed on some equitable basis.
CLASSIFICATION OF OVERHEADS
y ON THE BASIS OF FUNCTIONS
y FACTORY OVERHEADS
It is the aggregate of all the factory expenses incurred in connection with
manufacture of a product. These are incurred in connection with running of factory. It
includes the items of expenses viz, factory salary, work managers salary, factory repairs,rent of factory premises, factory lighting, lubricants, factory power, drawing office salary,
haulage (cost of internal transport) depreciation of plant and machinery unproductive
wages, estimation expenses, royalties, loose tools w/ off, material handling charges, time
office salaries, counting house salaries etc.
yADMINISTRATIVE OR OFFICE OVERHEADS
It is the aggregate of all the expenses as regards administration. It is the cost of
office service or decision-making. It consists of the following expenses: Staff salaries,
printing and stationery, postage and telegram, telephone charges, rent of office premises,
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
8/22
office conveyance, printing and stationery and repairs and depreciation of office premises
and furniture etc.
y SELLING & DISTRIBUTION OVERHEADSIt is the aggregate of all the expenses incurred in connection with sales and
distribution of finished product and services. It is the cost of sales and distribution services.
Selling expenses are such expenses which are incurred acquiring and retaining
customers. It includes the following expenses:
(a) Advertisement (b) Show room expenses (c) Traveling expenses (d) Commission toagents (e) Salaries of Sales office (f) Cost of catalogues (g) Discount allowed (h) Bad debts
written off (i) Commission on sales (j) Rent of Sales Room (k) Sample and Free gifts (L) After
sales service expenses (m) Expenses on demonstration and technical advice to prospective
customers (n) Free repairs and servicing expenses (o) Expenses on market research (p)
Fancy packing and demonstration.
Distribution expenses include all those expense which are incurred in connection with
making the goods available to customers these expense includes the following (a) Packing
charges (b) Loading charges (c) Carriages on sales (d) Rent on warehouse (e) Insurance and
lighting of warehouse (f) Insurance of delivery van (g) Expense on delivery van (h) Salaries of
Godownkeeper, drivers and packing staff.
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
9/22
COST SHEET
For determination of total cost of production a statement showing the various elements of
cost is prepared. This statement is called as a statement of cost or costsheet. Cost sheet is a
statement which provides assembly of the detailed cost of a cost center or a cost unit. It is a
statement showing the details of a) total cost of job b) Cost of an operation or order. It brings
out the composition of total cost in a logical order under proper classifications & sub-divisions.
The period is covered by the cost sheet may be by a week a month or so. Separate columns are
provided to show total cost, cost per-unit etc. In case of different products there are different
cost sheets for different products. A cost sheet is prepared under output or unit costing
method.
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
10/22
PURPOSE OF COST SHEET
1. It gives the break up of total cost under different elements.2. It shows total cost as well as cost per unit.3. It helps in comparison with previous years.4. It facilities preparation of tenders or quotations.5. It enables the management to fix up selling price.6. It controls cost.
DIVISIONS OF COST
y PRIME COST
It comprises of all direct materials, direct labour and direct expenses. It is also known
as flat cost
Prime cost = Direct Materials + Direct Labour + Direct Expenses
y WORKS COST
It is also known as a factory cost or cost of manufacture. It is the cost of
manufacturing an article. It includes prime cost and factory expenses.
Works Cost = Prime Cost + Factory Overheads
y COST OF PRODUCTIONIt represents factory cost plus administrative expenses.
Cost of Production = Factory Cost + Administrative Expenses
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
11/22
TOTAL COST
It represents cost of production plus selling and distribution expenses.
Total Cost= Cost of Production + Selling & Distribution Expenses
y SELLING PRICE
It is the price which includes total cost plus margin of profit or minus loss, if any.
Selling Price = Total Cost + Profit (-Loss)
NON COST ITEMS
Non-cost items are those items which do not form part of cost of a product. Such items
should not be considered while ascertaining the cost of a product. These are items included in
the Profit & Loss A/c.
These will not come in the cost sheet
a) Income taxb) Interest on capitalc) Interest on loand) Profit on Sale of fixed assetse) All the assetsf) Donationsg) Capital Expenditureh) Discount on shares & Debenturesi) Commission to Partners, Managers etcj) Brokeragek) Preliminary Expenses Written off.l) Wealth tax etcm)Bonus to directors and employees if it is based on profit, expenses of raising capital,
penalties & fines.
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
12/22
UTILITY OF COST SHEET
y DETERMINE THE TOTAL COSTA total cost sheet (statement) helps in determining aggregate cost of manufacturing a
product or providing a service.
y DETERMINING PRODUCT PRICE
A cost sheet helps in identifying the total cost for a product or service which in turnhelps in properly pricing of products & services.
y COST REDUCTION OR COST CONTROL
Cost sheets helps in identifying the total cost stage wise & any unwanted cost can be
curtailed.
y PREPARE BUDGETS
A cost statement helps in preparing budget for each department
y PROFIT PLANNING
It helps to minimize cost & increase profits.
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
13/22
1. STAGE WISE COST IDENTIFICATION
Costs such as prime cost, factory cost, cost of production, cost of goods sold, total
cost of sale etc.
2. DETERMINE THE COST PER UNIT
This helps in determining cost per unit on which u can predict further cost.
DETERMINATION OF TOTAL COST
Cost of product is determined as per cost attach concept. Total cost of a product consists of
various elements of cost which have the quality of coherence. All the elements of cost can be
grouped and regrouped. Grouping and regrouping of various elements of cost leads to
significant divisions of cost. The logical process of determination of cost by grouping and
regrouping various elements is illustrated as follows:
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
14/22
Product glasses
Direct-Indirect Segregation
Material
Direct Material required
y Glasses/fibrey Nose guardy Framey Plastic band for glass holdingy Boltsy Ear guardsy Holder (box)y Cleaning fabricy Printing material (label)y Small stud
Indirect material required
y Moulds for framey Gum/any sticking elementy Mould for glassy
Screw drivers for boltsy Glass cuttery Machine for framey Machine for glassy Machine for printingy Cleaning materialy Printing ink
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
15/22
Labour
Indirect labour
y Nuts and bolts manufacturery Machine mechanicsy Transportation
Direct labour
y Frame manufacturery Glass manufacturery Spectacle manufacturery Glass cleaner
Expenses
Direct Expenses
y Freight chargesy Wagesy Electricity (floor)y Cleaningy Securityy Maintenancey Certification
Indirect Expenses (shop)
y Securityy Shop renty Salaryy Electricity (shop)y Food and amusementsy Cleaningy Maintenancey Communication chargesy Stationary and other expenses
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
16/22
Fixed-Variable Segregation
Fixed cost
y Office/factory renty Machine costy Salaryy Registration chargesy Food and amusementsy Securityy Cost of mouldsy Certificationy Cleaning
Variable cost
y Glass costy Frame costy Bolts costy Nose guardy Plastic band for glass holdingy Ear guardsy Holder (box)y Cleaning fabricy Printing material (label)y Small study Wagesy Maintenance
Semi-variable cost
y Factory electricityy Transportationy Communication chargesy Stationary and other expensesy Moulds for framey Moulds for glass
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
17/22
COSTING OF A SINGLE SPECTACLE
y DIRECT MATERIAL COSTINGPRODUCT COST
y Glasses/fibre Rs. 120 average for a spectacley Noseguard Rs. 3y Frame Rs. 70-100y Plastic band for glassholding Rs. 4y Bolts Rs. 1y Ear guards Rs. 3-4y Holder (box) Rs. 15y Cleaning fabric Rs. 2y Printingmaterial (label) Rs. 0.50y Smallstud Rs. 0.50
y Indirectmaterial costingPRODUCT COST
y Moulds for frame Rs.120-150 Per styley Gum/any stickingelement Rs. 4-5 per glassy Mould for glass Rs20-35 per styley Screwdrivers for bolts Rs.10eachy Glass cutter Rs.500y Machine for frame Rs.15000y Machine for glass Rs. 35000y Machine for printing Rs.2000y Cleaningmaterial Rs.2 per glassy Printing ink Rs.0.25 per glass
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
18/22
Labour cost
Direct
LABOUR COST
y Framemanufacturer Rs.5000 p.my Glassmanufacturer Rs. 8000 p.my Spectaclemanufacturer Rs. 6000 p.m.y Glass cleaner Rs.2500 p.m.
Indirect
LABOUR COST
y Nutsandboltsmanufacturer Rs. 4000 p.m.y Machinemechanics Rs. 3000 p.m.y Transportation Rs. 3500 p.m.
EXPENSES
Direct
EXPENSE COST
y Freight charges Rs.500-3000 per deliveryy Wages Rs.120 per day (eachworker)y Electricity (floor) Rs.1500 per monthy Cleaning Rs.200 per monthy Security Rs.5000 per monthy Maintenance Rs.1000 per monthy Certification Rs.10000 (once)
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
19/22
Indirect
PRODUCT COST
y Security(shop) Rs.2000 per monthy Shop rent Rs.5000 per monthy Salary Rs. 4000 per employeey Electricity (shop) Rs.500 per monthy Foodandamusements Rs.1000 per monthy Cleaning Rs. 300 per monthy Maintenance Rs.500 per monthy Communication charges Rs.500 per monthy Stationary and other expenses Rs. 300 per month
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
20/22
COST-SHEET
ASSUMPTION: PRODUCTION OF 1000 PIECES OF GLASSES
SELLING PRICE: Rs. 800 per glass
Material cost
y Glasses/fibre Rs. 120000y Nose guard Rs. 3000y Frame Rs. 80000y Plastic band for glass holding Rs. 4000y Bolts Rs. 1000y Ear guards Rs. 3500y Holder (box) Rs. 15000y Cleaning fabric Rs. 2000y Printing material (label) Rs. 500y Small stud Rs. 500
Total: Rs.2,29,000
y Moulds for frame Rs.15000y Gum/any sticking element Rs. 4500y Mould for glass Rs. 35000y Screw drivers for bolts Rs. 100y Glass cutter Rs. 500y
Machine for frame Rs. 15000y Machine for glass Rs. 35000y Machine for printing Rs. 2000y Cleaning material Rs. 2000y Printing ink Rs. 250
Total: Rs.99,350
Labour cost
y Frame manufacturer Rs.5000 p.my Glass manufacturer Rs. 8000 p.my Spectacle manufacturer Rs. 6000 p.m.y Glass cleaner Rs.2500 p.m.y Nuts and bolts manufacturer Rs. 4000 p.m.
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
21/22
y Machine mechanics Rs. 3000 p.m.y Transportation Rs. 3500 p.m.
Total: Rs. 32,000
GOE
y Freight charges Rs.20000y Wages Rs. 48000y Electricity (floor) Rs.1500y Cleaning Rs.200y Security Rs.5000y Maintenance Rs.1000y Security(shop) Rs.2000y Shop rent Rs.5000y Salary Rs.12000y Electricity (shop) Rs.500y Food and amusements Rs.1000y Cleaning Rs. 300y Maintenance Rs.500y Communication charges Rs.500y Stationary and other expenses Rs. 3000
Total: Rs.1,05,000
Total sales: Rs. 8,00,000
Total expense: Rs. 4,65,250
Profit: Rs. 3,34,750
-
8/8/2019 CAP Piyush Pushneet, Riti , Sameer
22/22