elementsofcostsandclassificationofexpenditure-130918101823-phpapp01

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Published on March 16, 2014

Author: jgkonnully

Source: authorstream.com

Elements of Costs and Classification of Expenditure: Elements of Costs and Classification of Expenditure Asst . Prof. Joseph George Konnully , MJCET Elements of costs: Elements of costs In order to interpret the term cost correctly and to ascertain the cost with respect to the cost centers, the cost attached with the manufacturing process may be subdivided, known as Elements of Costs . (A) Material cost (B) Labour cost (C)Expenses Rights reserved by Asst.Prof . Joseph George Konnully Material Cost: Material Cost The cost of commodities and materials used by the organization. Direct Material Cost – all raw materials, either purchased from outside or manufactured in house. Indirect Material Cost – material which cannot be identified with the individual cost centre, assist the manufacturing process and does not become an integral part of finished goods. Consumable stores, Cotton waste, oils and lubricants, stationary material etc. Elements of Cost: Elements of Cost Cost Material Cost Direct Material Cost Indirect Material Cost Labour Cost Direct Labour Cost Indirect Labour Cost Expenses Direct Expense Indirect Expenses Selling & Distribution Overheads Administration Overhea ds Factory / Works Overheads Labour Cost: Labour Cost The cost of remuneration paid to the employees of the organisation . Direct Labour Cost – identified with the individual cost centre and is incurred for those employees who are engaged in the manufacturing process. Indirect Labour Cost – cost which cannot be identified with the individual cost centre and is incurred for those employees who are not engaged in the manufacturing process but only assist. wages paid to foreman/storekeeper, salary of works manager, Accountant/Personnel dept. salaries etc. Rights reserved by Asst.Prof . Joseph George Konnully Expenses: Expenses This is the cost of services provided to the organisation and the notional cost of assets owned. Direct Expenses Cost – Expenses identified by individual cost centers. Hire charges of machinery/equipment for particular job, cost of defective work etc. Indirect Expenses Cost – Expenses which cannot be identified by individual cost centers. Rent , Telephone expenses, Insurance, Lightening etc. Rights reserved by Asst.Prof . Joseph George Konnully PowerPoint Presentation: Direct Material Cost + Direct Labour Cost + Direct Expenses Ind irect Material Cost + Ind irect Labour Cost + Indirect Expenses Prime Cost Overheads or Oncosts Overheads- Classification : Overheads- Classification Factory / Works Overheads Consist of all overhead costs incurred from the stage of procurement of material till the production of finished goods. Indirect material such as Consumable stores, Cotton waste, oils and lubricants, stationary material etc. Indirect labour cost such as wages paid to foreman/storekeeper, salary of works manager, Accountant/Personnel dept. salaries etc. Indirect Expenses cost such as Carriage inward cost, Factory lightening/power expenses, rent/ Insurance /repairs for factory building/machinery, depreciation on factory building or machinery etc. Rights reserved by Asst,Prof.Joseph George Konnully Overheads- Classification : Overheads- Classification Office and Administrative Overheads These overheads consists of all overheads costs incurred for the overall administration of the organisation . They include : Indirect material such as stationary items, office supplies etc. Indirect labour cost such as salaries paid to account and administrative staff, Directors’ remuneration etc. Indirect expenses such as postage/telephone, depreciation on office building, legal/audit charges, Bank charges . Rent/insurance / repairs in offices etc. Rights reserved by Asst. Prof. Joseph George Konnully Overheads- Classification : Overheads - Classification Selling and Distribution Overheads These overhead consist of all overhead costs incurred from the stage of final manufacturing of finished goods till the stage of sale of goods in the market and collection of dues from customers. Indirect material such as packaging material, samples etc. Indirect labour like salaries paid to sales personnel, commission paid to sales manager. Indirect expenses like carriage outward, warehouse charges, advertisement, bad debts, repairs and running of distribution van, discount offered to customers etc. Overheads- Classification : Overheads - Classification Selling and Distribution Overheads Subscription to mercantile agencies and journals. Printing of catalogues and price lists and general stationary. Rights reserved by Joseph George Konnully Classification of Cost and Expenses: Classification of Cost and Expenses A. Direct Material Direct Labour Prime Cost Direct Expenses B. Works Expenses, Indirect Materials Works Cost or Factory cost Indirect Labour i.e. A + B Rent & taxes of factory (Also often Production Cost) premises, Depreciation, Repairs, Fuel & power etc. C. Office Expenses Office Rent, Rates, Office Cost Or Cost of Production Stationary i.e. A + B + C Directors fees etc. Rights reserved by Asst. Prof Joseph George Konnully Classification of Cost and Expenses: Classification of Cost and Expenses D. Selling Expenses, such as Sales staff salaries Show room expenses Cost of Sales, Advertising i.e. A + B + C + D Carriage outwards Packing Bad Debts E. Plus Profit Or Selling price Minus Loss i.e. A + B + C + D + E Rights reserved by Asst. Prof Joseph George Konnully Expenses excluded from Costs: Expenses excluded from Costs Item of expenses which are apportionment of profit should not form a part of the costs. These are- Income tax Dividend to share holders Commission to partners, managing agents etc. Capital Loss Interest on Capital Interest paid on debentures Capital expenses etc. Treatment of Stock: Treatment of Stock Stocks are generally categories as- Raw Material Work-in-progress Finished Goods Stock of raw materials should be adjusted in order to find out cost of consumption of raw materials: Value of Raw material consumed = Opening Stock of Raw Material + Net Purchases – Closing Stock of Raw Materials Treatment for semi finished goods: Treatment for semi finished goods Work-in-progress is Semi finished goods at the time of finding of Total Cost of Production. Work-in-progress consists of : Cost of Materials to date Cost of labour to date Manufacturing expenses to date The amount of work-in-progress consumed is excess of opening balance of work-in-progress over closing work-in-progress. Statement of Cost / Cost Sheet: Statement of Cost / Cost Sheet         Rs. Rs.   Raw Materials           Opening stock of Raw materials   P       Raw Material purchased   P       Cost of Materials available for use   P       Less : Closing stock of raw Materials   ( P )       Cost of Raw materials used / Consumend     P   Direct labour Wages     P   Other Direct charges     P       Prime Cost   P   Factory Overheads:           Indirect materials   P       Indirect Labour   P       Depreciation on factory Building   P       Depreciation on Factory equipments   P       Insurance   P       Repairs and maintenance   P       Other factory overheads   P P       Gross Factory Cost   P   Add : Work-in-progress (Opening)     P   Less: Work-in-progress (Closing)     ( P )       Factory cost   P   Office and Administrative overheads           Office salaries   P       Office rents, Insurance   P       Other office overheads   P P       Office Cost / Cost of Production   P   Add : Opening Stock of Finished goods     P     Goods available for sale     P   Less: Closing Stock of Finished Goods     ( P )       Cost of Goods sold   P     Selling and Distibution Expenses     P       Cost of Sales   P       Profit   P       sales   P Ladder of cost-Development of Selling Price : Ladder of cost-Development of Selling Price

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