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Costing MIS

Management accounting produces weekly or monthly reports that cover internal issues. These reports include various stats, available monetary fund, returns generated on sales, piled up orders, amount of payment to be generated, remaining debts, stats of raw materials.

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Costing MIS

  1. 1. Objectives and Functions of costing MIS:  1) Cost control and Cost Reduction:  2) Guide to Business Policy:  3) Determination of Selling Price:  4) Fixing profit per products.
  2. 2. Importance of costing MIS Detailed Cost information Help in price fixation Reveals profitable or non profitable activity Reveals idle capacity Helps in decision making Helps in controlling costs Cost comparison Helps in inventory control
  3. 3. Cost Classification A) Classification into Direct and Indirect Costs:  direct costs: these are those costs which are incurred for and identified with a particular cost unit.  Indirect costs: these costs cannot be identified with the particular cost unit. B) Classified into fixed and variable costs:  fixed cost:  variable cost:  semi variable or semi fixed costs:
  4. 4. C) classification into product costs and period costs:  product costs: these are those costs which are necessary for production and which will not be incurred if there is no production. Period costs: these costs are not necessary for production but incurred even if there is no production. Example: showroom rent, salary of supervisor.
  5. 5. Cost element Cost divided in to 3 parts. 1) material. 2) labour. 3) expenses. 1) Material cost: divided into 2 parts. a) direct material: cost is that which can be conveniently identified with and allocated to cost units. Direct material generally become a part of the finished products. Example: leather in shoes, steel in machines.
  6. 6. B) indirect material: are those materials which cannot be conveniently identified with individual cost units. Example: lubricant oil, small tools, nuts and bolts. 2) Labour cost: a) direct labour cost: b) indirect labour cost example: supervisor, clerk, watchmen. 3) Expenses cost: a) direct expenses: b) indirect expenses: Example: rent, depreciation, advertising.
  7. 7. Overhead cost 1) factory overhead. a) indirect material+ indirect labour + indirect expenses of factory. 2) office overhead. b) indirect material+ indirect labour + indirect expenses of office. 3) selling and distribution overhead. c) indirect material+ indirect labour + indirect expenses of selling.
  8. 8. Examples of Indirect material At factory level – lubricants, oil, etc. At office level – Printing & stationery, Dusters, etc. At selling & dist. level – Packing materials, printing & stationery, etc.
  9. 9. Examples of Indirect labour At factory level – Production managers salary, security ’s salary, store keeper’s Salaryetc At office level – Administrative staff s salary, MD , Accounts department and salary, etc. At selling and dist.level – salesmen salaries, Logistics manager salary, etc.
  10. 10. Examples of Indirect expenses At factory level – factory rent, factory insurance, lighting, spares parts etc. At office level – office rent, office insurance, office lighting, printing and stationary etc. At sales & dist.level – advertising, show room expenses like rent, insurance, marketing etc.
  11. 11. Particulars Total cost cost per unit Direct Material Add:Factory or works overheads Indirect material Indirect wages Factory rent Factory lighting Factory insurance Drawing office expenses Power and fuel Depreciation repairs Maintenance of Plant Factory manager Salary Less: sale of Scrap Factory cost or work cost  
  12. 12. Add: Office And Administration Overheads Office rent Office Salaries Director's Fees Office Lighting Establishment charges audit fees Legal Charges Bank Charges General Office Expenses Cost of Production Add: Selling and distribution Expenses showroom expenses salesman Salaries travelling Expenses advertisement Market research Bad debts Cost of free samples Cost of Sales or total Cost Add: Profit Sales
  13. 13. Cost Control Cost Control is function, which makes sure that actual work is done to fulfil the original intention. It is a widely accepted notion that the actual costs for each cost element should be within the budget Importance of Cost Control i)It enables the firm to achieve its defined objectives. ii)It leads to proper utilization of the firm's resources iii)It ensures the survival and growth of a firm by preserving its competitive capability. Cost Control Techniques 1)Budgetary Control 2)Bench Marking 3)Target Costing 4)Standard costing Microsoft Excel 97-2003 Worksheet
  14. 14. Cost Reduction “ Cost Reduction is to be understood as the achievement of real and permanent reduction in the unit cost of goods manufacture or services rendered without impairing their suitability for the use intended” Importance of Cost Reduction i)It ensures reasonable prices to customers by not passing on the inefficiency of the business itself Purpose for Cost Control and Cost Reduction ii)To create cash for reinvest in R&D iii)To reduce manufacturing cost iv)To lower cost of service v)To become more efficient
  15. 15. Cost Reduction Techniques 1)Value Analysis and Value Engineering 2)Quality Control 3)Business Process Reengineering 4)Inventory Management 5)Kaizen Costing 6)Work Study Method