In Accounting there have two part one is Financial accounting and another is Cost Accounting.Today I will dicuess about Cost accounting.
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Defination of cost Accounting :
According to Bhabatosh Banerjee “Cost Accounting is a quantitative method that accumulates,classifies,summarizes and interprets financial and non- financial information for three major purpose,Viz
1.Ascertainment of cost of product or service.
2.Operational planning and control
3. Decission-making.
The main purpose of cost accounting is calculation of product cost. For calculation of product cost company create Cost sheet. In cost sheet there have details data about cost.
In cost sheet there have three type of cost.
1.Material:
Materials are substance that objects are made from.
In cost Accounting There have two type of material.
a)Direct material:
Direct material is the material which can be conveniently identified with and allocated to cost centres and cost units.(e.g wood for furniture)
b)Indirect material:
Materials that form a part of a finished product but their cost is relatively insignificant or material which cannot be identified as a part of finish product these type of material is called indirect material (e.g. buttons used in a shirt, nails and varnish used in furniture, nails used in shoes)
2.Labour:
Labor cost is the total of wages, benefits, and payroll taxes paid to and for all employees. It’s divided into two categories:
a)Direct labour /wages:
Direct wage is the wage which can be conveniently identified with and allocated to cost centres and cost units.It refers to the wages paid to the workers who actually produce the good(wages paid to driver,conductor in case of transport service)
b)Indirect labour cost/wages:
Indirect wages represent the cost of labour employed in the the works or factory which is ancillary to production. In short,wages which cannot be directly identified with a job,process or operation are generally treated as indirect wages(ex. Inspector, mechanics,cleaner)
3.Expense:
An expense is a cost that business incur in runing their operation.
There have two types of expense
a)Direct expense:
Direct expenses are those which are neither direct material cost nor direct wages but are directly identifiable with a job, process or operation. (ex. Special Drawing, royality,research cost)
b)Indirect expense:
Expenses which cannot be charged to a product directly and which are neither indirect material cost,indirect labour cost.(eg.rent,insurance,canteen expense,power, lighting,heating)
Overhead:
All indirect expense,labour, materials are overhead eg. We can say all indirect are overhead.
