Introduction to Cost & Management Accounting
Cost Accounting is a specialized branch of accounting which not only involves classification, accumulation, assignment but it also helps in controlling of cost. This branch of accounting developed due to limitation of Financial Accounting as Financial Accounting only deals with historical data and is unable to provide information about future.
Cost Accounting helps in
• Classifying and analyzing all expenses with reference to product and operation.
• It helps in calculating cost of unit, job, operation, process etc
• It helps in planning
• It helps in controlling cost.
• It also helps in price fixation
• It also helps in comparison inter firm and intra firm
• It helps in inventory management and control
Because of above mention reasons cost accounting is a very important branch of accounting. In cost accounting all cost are classified in various categories.
CLASSIFICATION BY TIME
Historical Costs: Historical costs are ascertained only after they are incurring them
Pre determined Costs: Pre determined Costs are ascertained before they are incurred. As they are ascertained before being incurred they are also known as Estimated Cost.
CLASSIFICATION BY NATURE OR ELEMENT
• Material: Material is the substance used in production. This can be in form of Raw material used for production known as Direct Material or material which does not part of the product but is necessary of production known as Indirect Material.
• Labour: Labour is the people or the workforce engaged in production. This can further be classified as Direct and Indirect. Direct Labour includes the wages paid to employees directly engaged in production. On the other hand all those employees who are not engaged in production but help in production office or sales are known as Indirect Labour.
• Expenses: Expenses can also be classified as Direct and Indirect.
CLASSIFICATION BY ASSOCIATION WITH THE PRODUCT OR PERIOD
• Product Costs
• Period Costs
CLASSIFICATION BY CHANGES IN ACTIVITY OR VOLUME
• Fixed costs
• Variable cost
FUNCTIONAL CLASSIFICATION OF COSTS
• Manufacturing or production cost
• Selling and distribution cost
METHODS OF COSTING
Job Costing: Job Costing is used in those organizations where products are produced as per the requirements and specification of customer.
Contract Costing: Just like job costing in contract costing too order is as per the customers specification however unlike job costing in contract costing each order is big in size, price and duration like construction of building, bridge etc.
Management accounting is a specialized branch of accounting which aims at providing information for one use group only that is managers. It is a fine blend of both Financial Accounting and Cost Accounting.
These online MCQ tests and MCQ questions includes all main concepts of the chapter (Introduction To Cost And Management Accounting) in CS Executive Module I Cost And Management Accounting (MCQ based OMR) Exam.