Advanced cost Accounting

                    Process Costing is a method of costing that is used in those industries where a product passes through different stages of manufacture before it becomes a finished product. Each stage of manufacture/production is known as process & ascertainment of cost at each stage is called process costing.                        This method of costing is suitable for industries engaged in the continuous production of identical & uniform-size products. The output of one process is passed on to the next process &  the output of the last process becomes the finished product. The raw material is introduced in the first process & its output is passed on to the second process & so on unless it reaches the final process where the finished product is obtained. Some materials may be introduced in different processes also. The cost (P.U) at each process can be obtained by dividing the total cost by the no.of units produced there. The cost of the final product is calc

    Where a single item is produced & the final product is homogeneous, the costing method is known as unit/output costing. The cost (P.U) is computed by dividing the total cost by the no.of units manufactured. Examples of industries in which this method is applicable are brick-making, paper mills, cement manufacturing & so on. Objectives : (a)  To know the total cost of production. (b) To classify cost under related categories such as prime cost, and work cost. (c) To determine the effect of each element of cost. (d) To compare costs during two / more periods. (e)  To determine the tender price on the basis of cost data. Tenders & Quotations :          A tender  is an offer inviting quotations to do certain work. Generally, a manufacturing concern is required to submit a tender/quotation for the prices for the supply of commodities it produces. A tender has to be prepared very carefully as the receipt of orders depends upon the tender supplied by the manufactur

                                   In batch costing articles are produced in a lot i.e., one unit of product is not produced but a lot of say,500 /1000 units of such product is produced. This is a form of job costing. Under job costing, it is used as a cost unit, whereas under batch costing, a lot of similar units which comprise the batch may be used as a cost unit for ascertaining cost. In the case of batch costing separate cost sheets are maintained for each batch of products by assigning a batch number. Cost (P.U) in a batch is ascertained by dividing the total cost of a batch by no.of items produced in that batch. Such a method of costing is used in the case of drug industries, readymade garments, bakeries....etc. Cost(P.U) = Total cost/ No.of items produced                   

           Job costing is a system of costing in which costs are ascertained in terms of a specific job that is not necessarily similar to another job. The unit of cost in this method is a job / a specific work order. A job is a specific order for work that is usually carried out within the factory.                   Job costing involves a considerable amount of recording & analysis. It requires reliable production control records which must show material issued to various jobs, labor time spent on different jobs & appropriate allocation of overheads. Each job passes through production cost centers. A separate job cost sheet is maintained for each job/product in which all expenses of material, labor, & overhead are recorded. The cost of completing a job /manufacturing a product is found out. Nature & suitability of job costing :                     Many organizations manufacture products / provide services on receipt of a specific order from a customer as per his re

           Every business enterprise in some way is different from the other. As such, several methods/systems of costing have been developed to suit the needs of individual business conditions. The general fundamental principles of ascertaining costs are the same in every system of costing but the method of analysis & presentation of costs differ from industry to industry. The main consideration which applies to the choice of a particular method of costing is the nature & type of products/services rendered by an enterprise.                Basically, there are two methods of costing : 1. Specific order costing 2. Continuous operation costing 1. Specific order costing : The term specific order costing refers to costing methods that are used by organizations that manufacture/assemble/construct jobs/products to individual customers' specific orders. Thus, specific order costing can be further classified into three categories. (i) Job costing (ii) Batch costing 2. Contin

                                                              OVERHEADS                   Cost pertaining to a cost centre or cost unit may be divided into two portions direct and indirect. The indirect portion of the total cost constitutes the overhead cost which is the aggregate of indirect material cost, indirect wages of indirect expenses. indirect costs are those costs which are incurred for the benefit of a no.of cost centres/ cost units. Indirect costs, therefore, cannot be conveniently identified with a particular cost centre/cost unit but they can be apportioned to /absorbed by cost centres/ cost units.                               Any expenditure over& above prime cost is known as overhead. In general terms, overheads comprise all expenditure incurred for/in connection with the general org. of the whole/ part of the undertaking i.e the cost of operating supplies&services used by the undertaking including the maintenance of capital assets. DEFINITION : Ov