Page 24 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 1: Introduction to Cost Accounting

Under process production, costs are divided into two categories: materials and conversion. Notes
Conversion costs include labour and overhead costs. The cost systems produced to cost units
complete and units in progress by calculating the cost per equivalent unit completed during
the period. Then it applies the cost per equivalent completed to units complete and to units in
progress. In process production using standard costing system, standard unit costs are developed
for both direct materials and conversion costs. Variances between standard and actual costs are
derived each period for both material and conversion at the departmental level. The variances
can then be analysed to determine their approximate causes.
Mixed Job-order and Process Production: The processes are used when the production process
has attributes of both job order and process. For example, in the manufacture of certain types of
clothing, the items differ in terms of quality of materials used but the other operations are the
same. In this case, direct materials costs are traced to each article of clothing as under job-order
methods but direct labour and overhead costs are allocated as under process methods.

Self Assessment

Fill in the blanks:
21. The primary goal of cost systems is to provide information for ......................

22. ...................... is used in industries as diverse as printing, construction, consulting, auto
repair and heavy machinery.

23. In a ...................... system, we establish standard rates for labour, material and overhead.
1.9 Summary

Cost denominates the use of resources only in terms of monetary terms.
In brief, cost is nothing but total of all expenses incurred for manufacturing a product or
attributable to given thing.
Costs which cannot be controlled are known as uncontrollable costs.

All fixed costs are very difficult to control or bring down; they rigid or fixed irrespective to
the level of production.

A budget is detailed plan of operation for some specific future period. It is an estimate
prepared in advance of the period to which it applies.
It acts as a business barometer as it is complete programme of activities of the business for
the period covered.
Under costing, the role of unit costing is inevitable tool for the industries not only to identify
the volume of costs incurred at every level but also to determine the rational price on the
commodities in order to withstand among the competitors.

Direct labour is the cost of the labour which is directly involved in the production of either
a product or service.

Indirect expenses are the expenses other than that of the direct expenses in the production
of a product.
The expenses which are not directly part of the production process of a product or service
known as indirect expenses.

LOVELY PROFESSIONAL UNIVERSITY 19