SRM INSTITUTE OF

SCIENCE AND TECHNOLOGY

PRACTICAL
COST ACCOUNTING
UAF20501J

Dr.G.SOWMIYA
ASSISTANT PROFESSOR
DEPARTMENT OF
COMMERCE
2023-24 (BCOM A & F)
 “A cost is the value of economic resources

COST
used as a result of producing. or doing
the things costed.”

- W.M. Harper.
 ICMA, London has defi ned 'costing' as the
ascer tainment of costs. "It refers to the

COSTING
techniques and processes of ascertaining
costs and studies the principles and rules
concerning the determination of cost of
products and services".
 “Cost Accounting is the process of

COST
accounting for cost from the point at
which expenditure is incurred to the
establishment of its ultimate relationship

ACCOUNTING with cost centres and cost units”.

- ICMA, London
 (A)Cost fi nding or cost ascertainment
OBJECTIVES (B)Control of cost

OF (C)Reduction of cost

COST (D)Fixation of selling price

(E)Providing information for

ACCOUNTING framing business policy
 Acco • Normal cost
rdin • Abnormal cost
g to
nor
mali
ty
• Production cost
• Administration cost

CLASSIFICATION
Accor
ding • Selling cost
to • Distribution cost
funct

OF COST ions

Accor • Uncontrollable cost

ding • Controllable cost
to
contr
ollabi
lity
 • Sunk cost
Accordin • Opportunity cost
g to • Replacement cost
relevanc
e to • Product cost
decision
making
and
control

• Fixed cost
Accordi • Variable cost
ng to • Semi- variable cost
nature
or
behavi
our

• Material
Accor • Labour
ding • Expenses
to
elem
ents
  Specifi c order costing

 Operation costing

 Job costing

 Contract costing

METHODS OF  Batch costing

 Process costing

COSTING  Operating costing

 Operation costing

 Unit costing

 Multiple costing

 Activity based costing

 Cost Centre
Cost centre is defi ned as "A location,
person or item of equipment (or group of
these) for which costs may be ascertained
and used for the purposes of cost control“

SOME - I.C.M.A.

IMPORTANT Cost unit

TERMS - The chartered Institute of Management
Accountants, London, defi nes a unit of
cost as "a unit of product or service in
relation to which costs are ascertained".
 Cost control Profit Centre
It is a segment of a business responsible for all
The Chartered Institute of
activities involved in the production and sales of
Management Accountants, London,
products and services. Profit centre is responsible
defines cost control as " the regulation
for revenues and costs. It is created for evaluating
by executive action of the cost of
performance of a division. Profit Centre has
operating an undertaking particularly
autonomy for decisions concerned with the Centre.
where such action is guided by
cost accounting".
 Cost sheet is a statement showing the

COST SHEET total cost under proper classifi cation in a

logical order.
IMPORTANCE  Ascertainment of cost

AND NEED OF  Controlling costs

COST SHEET  Fixation of selling price

 Submitting of tenders
 SPECIMEN OR PREPARATION OF COST SHEET
Particulars ` `
Opening stock of direct materials XXX
Add: Purchase of direct materials XXX
Expenses, taxes and duties on material purchased XXX
Material purchased XXX
Less: Closing stock of direct material XXX
Direct material scrap sold XXX XXX
Cost of raw material consumed XXX
Add: Direct wages XXX
Direct (or) chargeable expenses XXX
Prime cost XXX
Add: Factory overhead:
Fuel, Power, gas, coal, wastes etc (factory) XXX
Indirect material XXX
Wages of foreman & other indirect wages XXX
Factory rent, taxes, insurances etc. XXX
Lighting, heating (factory) XXX
Drawing office, work office expenses XXX
 XXX
Add: Opening work-in-progress XXX
XXX
Less: Closing work-in-progress XXX
Work cost (or) factory cost XXX
Add: Administrative overhead:
Office salary XXX
Office rent, insurance, taxes, lighting XXX
Telephone, postage, printing, stationery XXX
Audit fees, legal expenses etc XXX
Directors remuneration XXX
Depreciation of office building, office equipment, furniture XXX
General managers salary XXX
Gas, water, fuel etc., (office) XXX
Counting houses salaries XXX XXX
Cost of production XXX
Add: Opening stock of finished goods XXX
XXX
Less: Closing stock of finished goods XXX
Cost of production of goods sold XXX
Add: Selling and distribution overhead:
Salesman salaries and commission XXX
Godown rent or warehouse rent XXX
Bad debts or discount etc. XXX
Showroom expenses XXX
Advertising XXX
 PROBLEM NO: 1 (Cost sheet – With details of overheads)
The following information has been obtained from the cost records of
Modern Works Ltd., for three months ending 31st March, 2012 during
which 100 units are produced and all the units are sold @ `3,000 per unit.
Prepare statement showing the following information: (a) Prime cost, (b)
Work cost, (c) Cost of production, (d) Cost of sales and (e) Profit.
Stock of raw materials 18,000 Indirect labour 9,000
on 1-1-2012

Stock of raw materials

21,000 Direct labour 28,000

PROBLEMS
on 31-12-2012
Depreciationon 3,000
Material Purchases
1,62,000 furniture

1,500
Carriage paid on
3,000 Printing & stationery
purchase
14,500
6,000 Office salaries and
Depreciation on plant
allowances
2,400
Warehouse rent
2,000
Repairs to plant
2,000
Advertising
7,000
Factory rent, taxes and
ANSWER STATEMENT OF COST AND PROFIT
PARTICULARS Rs Rs
Opening stock of raw materials 18000

Add: Materials purchased 162,000

180,000

Less: closing stock of raw materials 162000

Raw materials consumed

Carriage paid on purchase 18000

Direct labour 3000

Prime cost 28000

Add: Factory OH 49,000

Depreciation on plant 6000

Factory rent, Taxes and Insurance

Indirect material 7000

Indirect labour 11000

Add: Administration OH 3000 84000

Depreciation on Furniture 1500

Printing and stationary 14500

Office salary 19000

Cost of production 103000

Add: selling and distribution OH

Warehouse rent 2400

Advertising 2000

Salesmen salary 2600

Cost of sales 7000

Add: Profit 110000

Sales 190000

300000
PROBLEM NO: 2 (Simple cost sheet)
The following information relates to AG manufacturing company for the 3 months
ending 31-3-2012.
1,000 units of toy gun are produced during the period and all the units produced are
sold at `55 per unit.
Prepare a cost sheet showing (a) Prime cost, (b) Factory cost, (c) Cost of production,
(d) Cost of sales and (e) Profit or loss.
Direct materials 36,000 Factory overheads 12,000
consumed
24,000 Administrative overheads 9,000
Direct labour paid
8,000 Selling & distribution overheads 5,000
Direct expenses
ANSWER STATEMENT OF COST AND PROFIT
PARTICULARS Rs Rs

Direct materials consumed 36,000

Direct labour paid 24,000

Direct expense 8,000

Prime cost 68000

Add: Factory OH 12000

Work cost 80000

Add: Administration OH 9000

Cost of production 89000

Add: selling and distribution OH 5000

Cost of sales 94000

Less: loss (39000)

PROBLEM NO: 3
You are required to compile a statement showing cost and profit from the information given, showing clearly
: (a) Material consumed, (b) Prime cost, (c) Work cost, (d) Cost of production, (e) Cost of sales, (f) Profit and (g) Sales.
Factory overhead is absorbed at 20% on wages.
Administration overhead is 25% on the works cost.
Selling and distribution overhead are 20% on the cost of production. Profit is 20% on sales.

Material 4,00,000 Opening stock of 80,000

purchased 2,00,000 materials

Wages Closing stock of 1,20,000

material
Direct expenses 40,000
ANSWER STATEMENT OF COST AND PROFIT

PARTICULARS Rs Rs
Opening stock of raw materials 80000

Add: Materials purchased 4,00,000

4,80,000

Less: closing stock of raw materials 1,20,000

Raw materials consumed 3,60,000

Direct wages 2,00,000

Direct expense 40000

Prime cost 600000

Add: Factory OH 40000

Work cost 640000

Add: Administration OH 160000

Cost of production 800000

Add: selling and distribution 160000

OH

Cost of sales 960000

Add: Profit 240000
Sales 1200000
PROBLEM NO: 4
The following details have been obtained from the cost records of Raja sekhar Ltd.,
Prepare a cost sheet giving the maximum possible break up of costs and profit.

Stock of raw materials on 1-12-12 75,000 Depreciation of plant and machinery 3,500

Stock of raw materials on 31-12-12 91,500 Expenses on purchases 1,500

Direct wages 52,500 Carriage outwards 2,500

Indirect wages 2,750 Advertising 3,500

Sales 2,11,000 Office rent and taxes 2,500

Work-in-progress 1-12-12 28,000 Traveler’s wages and commission 6,500

Work-in-progress 31-12-12 35,000 Stock of finished goods 1.12.12 54,000

Purchases of raw materials 66,000 Stock of finished goods 31.12.12 31,000

Factory rent, rates and power 15,000

ANSWER STATEMENT OF COST AND PROFIT
PARTICULARS Rs Rs
Opening stock of raw materials 75000

Add: Materials purchased 66,000

141,000

Less: closing stock of raw materials 91500

Raw materials consumed 49500

Direct wages 52500

Expense on purchase 1500

Prime cost 103,500

Add: Factory OH

Depreciation on plant 3500

Factory rent 15000

Indirect wages 2750

Opening WIP 28000

Work cost 117750

Add: Administration OH

Office rent and rates 2500

Cost of production 120250

Add: opening stock of finished goods 54000

Less: closing stock of finished goods 31000

Cost of production of Goods sold 143250

Add: selling and distribution OH

Carriage outward 2500

Advertising 3500

Travelers wages and commission 6500 12500

Cost of sales 155750

Add: Profit 55250

Sales 211000
 PROBLEM NO: 5
Draw a statement of cost from the following particulars:
Cost sheet – with details of Overheads:

Particulars `
Opening Stock (1) Materials 2,00,000

(2) Work in Progress 60,000

(3) Finished goods 5,000

Closing Stock (1) Materials 1,80,000

(2) Work in Progress 50,000

(3) Finished goods 15,000

Materials purchased 5,00,000

Direct wages 1,50,000

Manufacturing expenses 1,00,000

Sales 8,00,000

Selling and distribution expenses 20,000

ANSWER STATEMENT OF COST AND PROFIT
PARTICULARS Rs Rs
Opening stock of raw materials 200000

Add: Materials purchased 500,000

700,000

Less: closing stock of raw materials 180000

Raw materials consumed 520000

Direct wages 150000

Manufacturing expense 100000

Prime cost 770000

Add: Factory OH

Opening WIP 60000

Less: closing WIP 50000

Work cost 780000

Add: Administration OH

Add: opening stock of 5000

finished goods

Less: closing stock of 15000 10000

finished goods

Cost of production of
770000
Goods sold

Add: selling and distribution

OH 20000

Cost of sales 790000

Add: Profit 10000

Thank You