Advanced cost Accounting

               Unit-ll  Capital Budgeting  Decisions                        Capital budgeting is a company’s formal process used for evaluating potential expenditures or investments that are significant in amount. It involves the decision to invest the current funds for addition, disposition, modification or replacement of fixed assets. The large expenditures include the purchase of fixed assets like land and building, newequipments, rebuilding or replacing existing equipments, research and development, etc. The large amounts spent for these types of projects are known as capital expenditures. Capital Budgeting is a tool for maximizing a company’s future profits since most companies are able to manage only a limited number of large projects at any one time.                 Capital budgeting usually involves calculation of each project’s future accounting profit by period, the cash flow by period, the present value of cash flows after considering time value of money, the numbe

Introduction : Financial management is comprised of two words , finance and management. The management aspect relates to planning, sourcing, allocating& controlling, while finance relates to financial resources which are always limited, contain value & have alternative usuage. So, finance as a resource needs proper management so that out of a given input, maximum output value can be derived. Now, it will depend on the skill of experts & managers.           Financial management deals with procurement of funds & effective utilisation of funds in business. Definition : According to I.M Pandey --- Financial Management is that managerial activity which is concerned with planning & controlling of the firm's financial resources.      The various characteristics of financial management are as follows : 1. Financial management involves management of financial resources. 2. It relates to planning, raising, acquiring, administering, allocating&  controlling of

Techniques of cost reduction : 1. Just in time ( JIT system) :   The main aim of JIT is to produce the required items, at the required quality & quantity at the precise time they are required. JIT purchasing requires for the items where too much carrying cost associated with holding high inventory levels, purchasing system reduces the investments in inventories because of frequent order of small quantities. 2. Target costing :   Target costing refers to the design of the product & it processes used to produce it. So, that ultimately the product can be manufactured at a cost that will enable the firm to make profit when the product is sold at an estimated market- driven price. The estimated price is called target price. 3. Activity based management :   ABM is a method of identifying & evaluating activities that a business performs using activity based costing to carry out a value chain analysis / a re-engeneering initiate to improve strategic & operational decisio

          Treatment of certain items : 1. Depreciation 2. Research & development 3. Material losses 1. Depreciation(Accounting standard 6 ) :          Depreciation is the diminution in the value of a fixed asset. Say a machine due to usage & lapse of time. A fixed asset has a  span of life during which it renders services for production purposes till the expiry of the asset. The life of an asset is enhanced by efficient maintenance & reduced by its extensive use. Throughout its life, the machine has been gradually diminishing its value to reach the scrap value at the expiry of its life. The gradual reduction in the value of an asset is called ''depreciation''.             Depreciation thus is the result of two factors - usage & lapse of time. The more the use of an asset the larger the amount of depreciation. Similarly, the use of assets is lower, the smaller the amount of depreciation. Reasons for charging depreciation : To ascertain the

     Cost Accounting has been traditionally associated with manufacturing companies. However, in the modern competitive market, cost accounting has been increasingly applied in service industries like banks, insurance companies, transportation organizations, electricity generating companies, hospitals, passenger transport and railways, hotels, road maintenance, educational institutions, road lighting, canteens, port trusts, and several other service organizations. The costing method applied in these industries is known as ‘Operating Costing’.        According to CIMA [London] operating costing is, ‘that form of operating costing which applies where standardized services are provided either by an undertaking or by a service cost center within an undertaking’. Nature of Operating Costing : The main objective of operating costing is to compute the cost of the services offered by the organization. To do this, it is necessary to decide the unit of cost in such cases. The cost units vary fr