COST ACCOUNTING INTERMEDIATE

1 INTERMEDIATESTUDY NOTESINTERMEDIATE : PAPER -8 COSTACCOUNTING The Institute of Cost Accountants of IndiaCMA Bhawan, 12, Sudder Street, Kolkata - 700 016 SYLLABUS - 2016 First Edition: July 2016 Revision: October 2017 Revised Edition: January 2018 Reprint: January 2019 Edition: August 2019 Edition: October 2019 Reprint: August 2020 Reprint: October 2020 Reprint : January 2021 Reprint : March 2021 Reprint : September 2021 Published by :Directorate of StudiesThe Institute of Cost Accountants of India (ICAI)CMA Bhawan, 12, Sudder Street, Kolkata - 700 016 Printed at :M/s. SAP Prints Solutions Pvt. , Lakshmi Industrial Path, Lower Parel (W)Mumbai - 400 013, MaharashtraCopyright of these Study Notes is reserved by the Institute of Cost Accountants of India and prior permission from the Institute is necessary for reproduction of the whole or any part 8: COST ACCOUNTING (CAC)Syllabus Structure:The syllabus comprises the following topics and study weightage.

2 AIntroduction to Cost Accounting40%BMethods of Costing30%CCost ACCOUNTING Techniques30%A40%B30%C30%ASSESSMENT STRATEGYT here will be examination of three provide an in depth study of the Cost ACCOUNTING Principles and Techniques for identification, analysis and classification of cost components to facilitate managerial decision aimsThe syllabus aims to test the student s ability to: Understand and explain the conceptual framework of Cost ACCOUNTING Explain the basic concepts and processes in determination of cost of products and services Understand the Cost ACCOUNTING Standards (CAS) Apply marginal costing in decision making Apply the concept of Standard Costing for variance analysisSkill set requiredLevel B: Requiring the skill levels of knowledge, comprehension, application and to Cost Accounting40%A.

3 Cost Ascertainment - Elements of CostB. Cost ACCOUNTING StandardsC. Cost Book of Costing30% ACCOUNTING Techniques30%INTRODUCTION TO COST ACCOUNTING [40 MARKS]1. INTRODUCTION TO COST ACCOUNTING :(a) Definition, Scope, objectives and significance of cost ACCOUNTING , its relationship with financial ACCOUNTING and management ACCOUNTING (b) Cost Objects, Cost centers and Cost Units(c) Elements of cost(d) Classification of costs2. COST ASCERTAINMENT - ELEMENTS OF COST:(a) Material Costs:(i) Procurement of Materials,(ii) Inventory Management and Control,Syllabus - 2016(iii) Inventory ACCOUNTING & Valuation(iv) Physical Verification, treatment of losses(v) Scrap, spoilage, defectives and wastage.

4 (b) Employee Costs:(i) Time keeping, Time booking and payroll,(ii) Labour Turnover, Overtime and idle time(iii) Principles and methods of remuneration and incentive schemes(iv) Employee cost reporting and measurement of efficiency.(c) Direct Expenses(d) Overheads:(i) Collection, classification and apportionment and allocation of overheads(ii) Absorption and treatment of over or under absorption of overheads(iii) Reporting of overhead costs3. COST ACCOUNTING STANDARDS (Basic Understanding only)(CAS 1 to CAS 24)4. COST BOOK KEEPING:(a) Cost ACCOUNTING Records, Ledgers and Cost Statements(b) Items excluded from cost and normal and abnormal items/cost(c) Integral accounts(d) Reconciliation of cost ACCOUNTING records with financial accounts(e) Infrastructure, Educational, Healthcare and Port servicesMETHODS OF COSTING [30 MARKS]5.

5 METHODS OF COSTING:(a) Job Costing(b) Batch Costing(c) Contract Costing(d) Process Costing normal and abnormal losses, equivalent production, Joint and By Products.(e) Operating Costing or Service Costing Transport, Hotel and HospitalCOST ACCOUNTING TECHNIQUES [30 MARKS]6. COST ACCOUNTING TECHNIQUES: (Basic Understanding only)(A) Marginal Costing(i) Meaning of Marginal Cost and Marginal Costing(ii) Absorption Costing vs. Marginal Costing(iii) Break-even analysis(iv) Margin of safety(v) Application of Marginal Costing for decision making (simple problems only)(B) Standard Costing & Variance Analysis(i) Concept of standard cost and standard costing(ii) Advantages and limitations(iii) Computation of variances relating to material and labour costs only(C) Budget and Budgetary Control (simple problems only)(i) Concepts, Types of Budgets(ii) Budgetary Control Vs Standard Costing(iii) Advantages and limitations(iv) Preparation of Budgets (simple problems only)COST ACCOUNTINGS tudy Note 1.

6 Introduction to Cost Definition, scope, objectives and significance of Cost ACCOUNTING , its relationship with Financial ACCOUNTING and Management ACCOUNTING Cost Object, Cost Centers and Cost Units Elements of Cost Classification of Cost Role of Cost Accountants in Organisations 23 Study Note 2 : Cost Ascertainment - Elements of Material Cost (CAS-6) Employee Costs (CAS-7) Direct Expenses (CAS-10) Overheads (CAS-3) 137 Study Note 3 : Cost ACCOUNTING Preface to Cost ACCOUNTING Standards (CASs) Objectives and Functions of Cost ACCOUNTING Standards Board CAS 1-24 as issued by The Institute of Cost Accountants of India 194 Study Note 4 : Cost Book Cost ACCOUNTING Records, Ledgers and Cost Statements Items excluded from Cost and normal and abnormal Items/Cost Non-Integrated ACCOUNTING Integral Accounts Reconciliation of Cost ACCOUNTING Records with Financial Accounts Infrastructure, Educational, Healthcare and Port Services 249 Study Note 5 : Methods of Job Costing Batch Costing Contract Costing Process Costing Joint & By-Products Operating Costing or Service Costing Transport, Hotel and Hospital 329 Study Note 6.

7 Cost ACCOUNTING Marginal Costing Standard Costing & Variance Analysis Budget and Budgetary Control 425 Cost AccountingTHE INSTITUTE OF COST ACCOUNTANTS OF INDIA 1 Study Note - 1 INTRODUCTION TO COST DEFINITION, SCOPE, OBJECTIVES AND SIGNIFICANCE OF COST ACCOUNTING , ITS RELATIONSHIPWITH FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTINGWay back to 15th Century, no ACCOUNTING system was there and it was the barter system prevailed. It was in the last years of 15th century Luca Pacioli, an Italian found out the double entry system of ACCOUNTING in the year 1494. Later it was developed in England and all over the world upto 20th Century.

8 During these 400 years, the purpose of Cost ACCOUNTING needs are served as a small branch of Financial ACCOUNTING except a few like Royal wallpaper manufactory in France (17th Century), and some iron masters & potters (18th century).The period 1880 AD- 1925 AD saw the development of complex product designs and the emergence of multi activity diversified corporations like Du Pont, General Motors etc. It was during this period that scientific management was developed which led the accountants to convert physical standards into Cost Standards, the latter being used for variance analysis and the World War I and II the social importance of Cost ACCOUNTING grew with the growth of each country s defence expenditure.

9 In the absence of competitive markets for most of the material required for war, the governments in several countries placed cost-plus contracts under which the price to be paid was cost of production plus an agreed rate of profit. The reliance on cost estimation by parties to defence contracts continued after World War addition to the above, the following factors have made accountants to find new techniques to serve the industry :-(i) Limitations placed on financial ACCOUNTING (ii) Improved cost consciousness(iii) Rapid industrial development after industrial revolution and world wars(iv) Growing competition among the manufacturers(v) To control galloping price rise, the cost of computing the precise cost of product / service(vi)

10 To control cost several legislations passed throughout the world and India too such as Essential Commodities Act, Industrial Development and Regulation to the above factors, the Cost ACCOUNTING has emerged as a specialised discipline from the initial years of 20th century after World War I and Study Note Definition, scope, objectives and significance of Cost ACCOUNTING its relationship with Financial ACCOUNTING and Management Cost Objects, Cost Centres and Cost Units Elements of Classification of Costs Role of Cost Accountants in organisationsCOST ACCOUNTING2 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA In India, prior to independence, there were a few Cost Accountants, and they were qualified mainly from (now CIMA) London.