ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Costing and Cost Accounting

Updated on July 12, 2018

Costing and Cost Accounting.


Costing or cost accounting is a branch of accounting which deals with recording classifying and appropriate allocation of expenditure to determine the cost of product and services.  After determining the cost one can fix the profit margin and also the fix the selling price.  In this complex and competitive market scenario, it is essential to determine the cost of products and services.  It also help the management to take an informed decision to reduce cost and increase the profit, reduce the manufacturing cost, whereby reducing the selling price.  To sustain in this competitive market, producers needs to reduce the selling price and increase the quality.

Definition of Costing.


According to Harold J Wheldon "Costing is the classifying, recording and appropriate allocation of expenditure for the determination of the costs of products or services; and for the presentation suitably of arranged data for purposes of control and guidance of management.

The term "Costing" and "Cost Accounting" are used interchangeably.  However, Costing refers to the technique and process of ascertaining costs.  There are specified rules and principles which are used to determine the cost of products and services.  Whereas the term Cost Accounting refers the process of finding out the cost. 

According to the Institute of Cost and Management Account "Cost accounting is that part of management accounting which establishes budgets and standard costs and actual costs of operations, processes, departments or products and the analysis of variances, profitability or social use of funds."

Use of costing

Every economic activity such as production and services involves some expenses.  These expenses may be of raw materials, labour cost or other direct and indirect expenses.  The purpose of production or services is that to earn profit.  Cost accounting serves the purpose of identifying the expenses and cost and the profit margin of the product.  For example a cloth factory launches a new shirt.  It has to incure $30 for material $ 20 for labor and $ 25 for other overheads.  The selling price fixed as $ 100.  The cost of the shirt is $ 75 (30+20+25) Profit is $ 25 (100-75). 

Every manufacturer requires such information for the purpose of planning, decision making and cost control.  Most of the time it is difficult to extract such information from the financial accounting.  A new system of accounting is developed to cater the requirement of the management to control the cost.  Various limitations and deficiencies of financial accounting gave rise to the need of cost accounting.

Costing provides the following benefits:


1. Fast Decisions: Costing help the management to take fast and informed decision on the basis of data provided by the Cost Accounting.

2. Optimum Profit: Costing help the organization to maximize the profit by exercising efficient control in personal, financial, production and marketing activities.

3. Maximum utilization of Limited Resources: By minimizing the wastage, once can minimize the wastage and maximize the utilization of resources.

4. Maintain Social Responsibility: Social responsibility in terms of regular supply, reasonable price, proper quality can be attain by effectively utilizing the cost accounting.

5. Effective Management: In large manufacturing plants requires special attention in every stage and process of the manufacturing. Cost accounting help the management to easily control every stage of the manufacturing process efficiently. It'll help the management to identify the inefficient department or process and address the issue and correct it.

6. Help the organization Globally competitive: In this ever changing global market stringent control over costs can help the organization to compete globally with other manufactures/markets.

Due to the many advantages, many companies are opting the help of costing to control the cost. It is now a widely recognized branch of accounting and generating employment for people who are specialized in Cost accounting. Costing helps in checking of wastage, pricing, control of resources, management of process, discharge of social obligations, flow of data for decision making and provides opportunity for profit growth in the organization.

Frequently arriving items in a cost sheet

Cost of Direct Material

Opening Stock of raw material
Add Purchase of raw material
Add: Carriage inwards

Less: Closing Stock

Direct Labour
Direct Expenses

PRIME COST (Total of all the above)


Factory Overheads


Office Salaries
Power/Fuel consumed
Other consumable stores
Indirect wages
Repairs of Machines/Plant
Depreciation of Plant & Machinery

Less: Amount received from sale of Scrap

FACTORY/WORKS COST
(Total of all the above + prime cost)

Office and administrative Overheads

Office Rent
Directors fees
Office salaries
General Charges

COST OF PRODUCTION
(Total of all the above + factory/works cost)

Selling and distribution overheads

Carriage outward
Advertisements
Sales department salaries
Traveling expenses

COST OF SALES (Total of all the above + cost of production)

Profit (Balancing figure)

Sales (Actual sales value of the product)

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)