Table Of ContentCost Accounting
For Bangalore University
(As per CBCS Syllabus 2014-15 as Revised in March 2017)
B.COM and B.B.A. IV SeMeSteR
About the Authors
Dr. V. Rajesh Kumar is an M.Com graduate from Bangalore University. He obtained his PhD in the area of
Strategy. While accounting and taxation are his areas of expertise, finance is his area of
passion. He has 25 years of experience in teaching at graduate, postgraduate and profes-
sional levels and has served at various institutions in different capacities – Mount Carmel
Institute of Management, Department of Commerce, Bangalore University, and Alliance
Business Academy, to name a few. He is a faculty for Strategic Financial Management and
Tax Laws at the Institute of Chartered Accountants of India, Bangalore. He has co-authored
textbooks on Accounting and Taxation for the requirements of various universities. He has
presented papers at various national and international conferences and published articles in reputed journals.
His paper on Capital Asset Pricing Model was selected for an International Conference at Harvard Univer-
sity, Cambridge, United States of America, during May–June 2011.
Dr. Rajesh also has a rich experience in research, consultancy and training – both at the academic level and
corporate level. He has conducted student development programmes and faculty development programmes
in various educational institutions and has conducted training programmes for executives and managers of
various companies like Wipro, Godrej, FCG, Honeywell, KPCL, Fouress Engineers, Triveni Engineering,
Tyco Electronics, etc., in the area of accounting, finance and taxation. He is associated as a resource person
for the Finance for Non-finance Executives Programme at the Institute of Chartered Accountants of India,
Bangalore.
He is the founder of Vittam Pravina Gurushala (Finance Expert Academy) – an academy engaged in spread-
ing the knowledge of finance to students, faculty, corporate and all others interested in the area of finance.
Presently, he is working as a finance and academic consultant and visits different management institutions for
teaching finance courses, in and outside India.
Dr. R. K. Sreekantha is an M.Com graduate from Bangalore University. He obtained his PhD from Banga-
lore University in the area of Marketing. While he has deep and practical knowledge in
most areas of commerce and management, accountancy, taxation and marketing are his
areas of interest, passion and expertise, which he has been teaching at different levels –
from graduation to postgraduation.
Dr. Sreekanth has been serving at B.S.V. Arts and Commerce College for Women over the
past 32 years. He is one among the most sought professors in Bangalore by various insti-
tutions and has been invited to deliver guest lectures to students and faculty members on
various areas of commerce and management.
He has participated in various seminars, workshops, national and international conferences and FDPs in
various capacities. His acumen in research is highly appreciated and the papers presented by him at various
conferences have been acclaimed in the respective domains.
Cost Accounting
For Bangalore University
(As per CBCS Syllabus 2014-15 as Revised in March 2017)
B.COM and B.B.A. IV SeMeSteR
V. Rajesh Kumar
Professor and Managing Partner
Vittam Pravina Gurushala,
Bangalore
R.K. Sreekantha
Associate Professor in Commerce
B.S.V. Arts and Commerce College for Women,
Bangalore
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Cost Accounting
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Dedicated to
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Preface
The most technologically efficient machine man has ever invented is the book
—Northrop Frye
Keep reading books, but remember that a book is only a book, and you should learn to think for yourself
—Maxim Gorky
Accounting in general, and Cost Accounting in particular, is one of the most exciting and essential functions
of a business enterprise. This book will explain the need, purpose and usefulness of ‘accounting for costs’.
Among many expectations corporate sector has from present and potential employees, one highly essential
requirement is knowledge in accounting and finance and skills for applying the knowledge. While acquiring
the knowledge and skill calls for pursuing various courses, a strong foundation is essential to go further,
which a student ought to get at the level of graduation. This book intends to provide the reader a strong
foundation on the subject matter. It is written for the specific requirements of the syllabus prescribed by
Bangalore University, and hence does not cover the entire ambit of the subject. However, the topics covered
are presented in a systematic and meticulous manner, providing the reader a ‘feel-good’ factor about the
subject.
While the chapters are presented in the order of the prescribed syllabus, we suggest the students to read
Chapter 7 after Chapters 1, 2 and 3, and continue with Chapters 4, 5 and 6. Complete care has been taken to
make the book error-free. However, mistakes might have crept in inadvertently. We request our readers to
bring to our notice, any such errors, omissions and mistakes, for enabling us to rectify in our future editions.
We thank Dr. M. Ramachandra Gowda, Registrar, Bangalore Central University and Dr. K.N. Pushpalatha,
General Secretary, BSVP Trust, who have encouraged us and extended support in carrying out this work.
We thank Suman Sen of McGraw Hill Education (India) for giving us the opportunity and constant encour-
agement to pursue this project, Amit Chatterjee for his innovative ideas, constant support, follow up and
guidance in bringing out quality content and Suhaib Ali for his excellent DTP and production work.
Our acknowledgments are also due to Mrs. Meera Rajesh, Mrs. Savitha and Mr. Nischal S Kanth, without
their support and sacrifice, this work would not have been completed by the deadline.
Last but not the least, our acknowledgements are due to the Almighty who has blessed us with the knowledge
and given us strength for spreading the same.
Dr. V. Rajesh Kumar
Dr. R. K. Sreekantha
Syllabus Syllabus ix
For Bangalore University
(As per CBCS Syllabus 2014-15 as Revised in March 2017)
B.COM and B.B.A. IV SeMeSteR
Chapter
4.4. Cost Accounting (Semester-IV) (IA: 30 M + Written: 70 M)
in the Book
UNIT 1: INTRODUCTION TO COST ACCOUNTING
Introduction – Meaning and Definition of Cost, Costing and Cost Accounting – Objectives of Chapter 1
Costing – Comparison between Financial Accounting and Cost Accounting – Designing and Chapter 2
Installing a Cost Accounting System – Cost Concepts – Classification of Costs – Cost Unit – Chapter 3
Cost Center – Elements of Cost – Preparation of Cost Sheet – Tenders and Quotations.
UNIT 2: MATERIAL COST CONTROL
Meaning – Types: Direct Material, Indirect Material. Material Control – Purchasing Procedure
– Store Keeping – Techniques of Inventory Control – Levels settings – EOQ – ABC Analysis
Chapter 4
– VED Analysis – Just In-Time – Perpetual Inventory System – Documents used in Material
Accounting – Methods of Pricing Material Issues: FIFO, LIFO, Weighted Average Price
Method and Simple Average Price Method – Problems.
Unit 3: LABOUR COST CONTROL
Meaning – Types: Direct Labour, Indirect Labour – Timekeeping – Time booking – Idle Time
– Overtime – Labour Turn Over. Methods of Labour Remuneration: Time Rate System, Piece Chapter 5
Rate System, Incentive Systems (Halsey plan, Rowan Plan and Taylor’s differential Piece
Rate System) – Problems
Unit 4: OVERHEAD COST CONTROL
Meaning and Definition – Classification of Overheads – Procedure for Accounting and Control
of Overheads – Allocation of Overheads – Apportionment of Overheads – Primary Overhead
Chapter 6
Distribution Summary – Secondary Overhead Distribution Summary – Repeated Distribution
Method and Simultaneous Equations Method – Absorption of Factory Overheads – Methods
of Absorption (Theory Only) – Machine Hour Rate – Problems on Machine Hour Rate.
Unit 5: RECONCILIATION OF COST AND FINANCIAL ACCOUNTS
Need for Reconciliation – Reasons for differences in Profit or Loss shown by Cost Accounts
Chapter 7
and Profit or Loss shown by Financial Accounts – Preparation of Reconciliation Statement
and Memorandum Reconciliation Account.
Skill Development
∑ Identification of elements of cost in services sector by visiting any service sector.
∑ Cost estimation for the making of a proposed product.
∑ Draft the specimen of any two documents used in material account.
∑ Collection and classification of overheads in an organisation on the basis of functions.
∑ Prepare a reconciliation statement with imaginary figures.
