Cost Sheet
COST ACCOUNTING MANAGEMENT ACCOUNTING
Is concerned with historical cost that is the Is concerned with forecasting of the
costs which have been already incurred costs and hence it looks into future
unlike cost accounting
The objective of cost accounting is to The objective of management
ascertain the costs and control accounting is to provide management
all information as and when required
by them so that they can take right
decisions at right time.
Cost accounting is done for internal parties Management accounting is done for
like top management, owners as well as top management only.
external parties like creditors, employees,
government,
Cost accounting was evolved many years
back and it is limited in its scope management accounting is still
evolving but its scope is much wider
than that of cost accounting because it
uses along with cost accounting other
principals of subjects like statistics
BREAK EVEN ANALYSIS:-
Break even Analysis is a technique of profit planning. It is
essentially a device for integrating costs. Revenues and output of the
firm in order to illustrate the probable effects of alternative
courses of action upon net profits.
The economic basis of BEA originates from the cost output and
revenue the difference between total revenue and total cost. The
Break even point is defined as the one where profit is equal to zero
total revenue equals total cost. “No profit No loss zone is BEP”
{TC = TR}
Assumptions:-
The behavior of costs and revenues of the firm remain linear.
Sale prices remain constant.
Cost of production remains unchanged.
Volume of output is the only relevant factor affecting cost.
Cost can be divided into fixed and variable
The Break even Analysis is often explained with the help of Graph:
In the above graph point & denotes the Break even. At point E
Total cost is equal to total revenue and hence total profit is equal
to zero.
USES OF BREAK EVEN ANALYSIS:
1) Information provided by the break even chart can be understood by
the mgt. more easily than that contained in the profit and loss
account and cost statement.
2) It helps to fix the sales volume required to cover a given return
as capital employed.
3) It helps the forecasting of cost and profit for the product.
4) It helps in determination of cost and revenue at various levels of
output.
5) Profit abilities of various products can be studied and a most
profitable product mix can be chosen.
6) It is use full to estimate the feature market for the product
7) It is use full to minimizing the cost and maximizing the profits of
the organization
Limitations of B E A:-
It is not dynamic because every thing is assumed as constant
It may not gives the accurate results all the time
It is not realistic and it does not hold well in practice.
It is limited to the short run period only.
It does not take into consideration the corporate tax, income
tax.
To manage and control selling cost is very difficult.
CALCULATION OF BEP
Contribution = Sales price of the unit – variable cost of the unit
P/V Ratio = Contribution per unit (OR) Change in Profits X 100
Selling price per unit Change in Sales
Fixed cost
B E P (In units) = ----------------------------------------------
Selling Price per unit – variable cost
Fixed cost
B E P = --------------------
Contribution
B E P = Fixed Cost
P/V Ratio
Margin of Safety:-
Margin of Safety is the difference between Actual Sales and Sales
at B E P.
It is the relationship between profit and profit volume ratio
Net Profit
Margin of Safety = --------------------------
Profit Volume Ratio.
Margin of Safety = Actual Sales - Break even sales
To calculating fixed cost of the organization
S = FC + P
P/V RATIO
Management Accounting
OVERHEADS
JOB COSTING
Process Costing
MARGINAL COSTING
BUDGETARY CONTROL
STANDARD COSTING
COST ACCOUNTING MANAGEMENT ACCOUNTING
Is concerned with historical cost that is the Is concerned with forecasting of the costs
costs which have been already incurred and hence it looks into future unlike cost
accounting
The objective of cost accounting is to The objective of management accounting is
ascertain the costs and control to provide management all information as
and when required by them so that they can
take right decisions at right time.
Cost accounting is done for internal parties Management accounting is done for top
like top management, owners as well as management only.
external parties like creditors, employees,
government,
Cost accounting was evolved many years management accounting is still evolving
back and it is limited in its scope but its scope is much wider than that of cost
accounting because it uses along with cost
accounting other principals of subjects like
statistics
COST AND MANAGEMENT
ACCOUNTING
