Following are the types of errors which do not affect the Trial Balance:

Cost accountancy is the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability as well as the presentation of information for the purpose of managerial decision making.

Following are the objects of Cost Accountancy:

Costing is the process of ascertaining costs whereas cost accounting is the process of recording various costs in a systematic manner, in order to prepare statistical date to ascertain cost.

Cost centre is defined as a location, machine, person, department, division, or any equipment or group of these, in relation to which direct and indirect costs may be ascertained and used for the purpose of cost control. Thus, an organisation for the costing purposes is divided in convenient units and one of the convenient units is known as cost centre. Example: collecting, sorting, washing of clothes are the various activities which are separate cost centre in a laundry.

The cost centre facilitates this function of cost control. Thus, correct identification of cost centre is a prerequisite for the successful implementation of cost accounting process. This also facilitates the fixation of responsibility in the correct manner.

There are three elements of cost:

Material Cost: This is the cost of material or the commodity used by the organisation for its production purpose. Material is the substance, from which a product is made. Thus, it may be in a raw or a manufactured state. It can be direct or indirect.

Direct Material Cost: forms an integral part of the finished product and is identified with the individual cost centre. It is also described as process material, stores material, production material, etc. Example: Raw materials purchased or purchased primary packing material, etc.

Indirect Material Cost: is used for ancillary purposes of the business and cannot be conveniently identified with the individual cost centre. Example: Consumable stores, oil and waste, printing and stationery material etc.

Labour Cost: This is the cost, incurred in the form of remuneration paid to the employees or labours of the organisation. The workforce required to convert material into finished product is called labour. It can be direct or indirect.

Direct Labour Cost: is the cost incurred on those employees who directly take part in the manufacturing process and easily identified with the individual cost centre.

Indirect Labour Cost: is the cost incurred on those employees who do not directly take part in the manufacturing process and cannot identified with the individual cost centre. Example: salary of foreman, salesmen, director’s salary, etc.

Expenses: are the costs of services provided to the organisation. It can be direct or indirect.

Direct Expenses: are the expenses which can be directly identified with the individual cost centres. Example: hire charges of machinery, cost of defective work for a particular job or contract etc.

Indirect Expenses: are the expenses which cannot be directly identified with the individual cost centres. Example: rent, lighting, telephone expenses, etc.

Explain Gross Profit.?

Gross Profit is a company’s revenue minus its cost of goods sold. It is also known as gross margin and gross income. It is calculated by subtracting all costs related to sales i.e manufacturing expenses, raw materials, labour, selling and advertisement expenses from sales. It is an indication of the managements’ efficiency to use labour and material in the production process.

Gross Profit = Net Sales – Cost of Goods Sold

There are two categories of material discrepancies:

First category includes:-

Time booking is recording the time actually spent by a worker on various jobs done by him in the factory for cost analysis and dividing labour cost into various jobs and departments. It also helps in control over wastage of time- idle time.

Different methods used for time booking are:

Daily Time Sheets: Under this method, a daily time sheet is provided to each worker on which time spent by him on various work orders is mentioned. This method can be conveniently used if the worker works on various jobs of short duration like in maintenance jobs. But this method is disadvantages also as it involves considerable paper work.

Weekly Time Sheets: In this method time is recorded for all the jobs done during the week instead of recording the work done for a day only. One sheet is allotted to each worker. It involves less paper work. These types of weekly time sheets are useful for intermittent types of jobs like construction work.

Job Card: Job Card is a method of recording details of time with reference to the jobs or work orders undertaken by the workers. This method facilitates the computation of labour cost with reference to jobs or work orders.

If the company is maintaining a system of time card and job card, the problem of reconciliation becomes simple as both the details are on the same card. If the time booked as per the job cards is less than the attendance time, this shows the idle time during which the worker has not done any work, though he was present in the factory. Thus, reconciliation of time attended and time booked tells us the actual amount of work done by the worker in comparison with the number of hours spent by him in the factory.

Previous Next