Cost Accounting - Introduction

Cost Accounting – Introduction

Price accounting is the appliance of accounting and costing ideas, strategies, and methods within the ascertainment of prices and the evaluation of saving or extra value incurred as in contrast with earlier expertise or with requirements.…Wheldon.

Ideas of Price Accounting

Following are the primary ideas of value accounting:


There’s a value concerned to buy or produce something. Prices could also be completely different for a similar product, relying upon the levels of completion. The price modifications in line with the stage a product is in, for instance, uncooked materials, work in progress, completed items, and so forth. The price of a product can’t be good and it might fluctuate for a similar product relying upon completely different constraints and conditions of manufacturing and market.


Some prices are precise, reminiscent of uncooked materials value, freight value, labor value, and so forth. Some bills are attributable to value. To earn income, some bills are incurred like lease, wage, insurance coverage, promoting & distribution value, and so forth. Some bills are variable, some are semi-variable, and a few of fastened nature.


Bills are incurred to acquire one thing and losses are incurred with none compensation. They add to the price of product or companies with none worth addition to it.

Price Heart

Price middle refers to a specific space of exercise and there could also be a number of value facilities in a corporation. Each value middle provides some value to the product and each value middle is liable for all its exercise and price. A value middle might also be referred to as a division or a sub-department. There are three sorts of value facilities:

  • Private and Impersonal Price Facilities – A bunch of individuals in a corporation accountable as a complete for a gaggle exercise known as a private value middle. In case of impersonal name middle, the actions are executed with the assistance of plant and equipment.
  • Operation and Course of Price Facilities – The identical form of exercise is finished in an operation division. In a course of value middle, because the identify suggests, completely different sorts of processes are concerned.
  • Product and Service Price Facilities – A division the place all actions discuss with product known as a product division. When the facilities render their companies to a product division for its clean functioning, they’re referred to as service value facilities.

Revenue Heart

Revenue facilities are inclusive of value facilities in addition to income actions. Revenue facilities set targets for value facilities and delegates duties to value facilities. Revenue facilities undertake insurance policies to attain such targets. Revenue facilities play a significant position in a corporation.

Price Drivers

Price of any product relies upon upon value drivers. There could also be various kinds of value drivers reminiscent of variety of models or sorts of merchandise required to provide. If there may be any change in value driver, the price of product modifications robotically.

Conversion Price

The price required to transform uncooked materials into product known as as conversion value. It consists of labor, direct bills, and overhead.

Carrying Prices

Carrying value represents the associated fee to keep up stock, lock up value of stock, retailer lease, and retailer operation bills.

Out of Inventory Price

Typically loss is incurred because of scarcity of inventory reminiscent of loss in sale, lack of goodwill of a enterprise or idle machine. It’s referred to as out of inventory value.

Contribution Margin

Contribution margin is the distinction between sale value and variable value.

Ordering Prices

Ordering prices signify the associated fee to put an order, as much as to stage till the fabric is included as stock.

Improvement Price

To develop new product, enhance current product, and improved technique in producing a product referred to as improvement value.

Coverage Price

The price incurred to implement a brand new coverage along with common coverage known as coverage value.

Idle Amenities Price and Idle Capability Price

If obtainable amenities stay idle and a few loss incurred because of it, it’s referred to as idle amenities value. If capability is unused because of restore, shut down or some other motive, it’s referred to as capability value.

Expired Price

When the associated fee is totally consumed and no future financial worth may very well be measured, it’s referred to as expired value. Expired value pertains to present value. Suppose the bills incurred in an accounting interval shouldn’t have any future worth, then it’s referred to as an expired value.

Incremental Income

Incremental income implies the distinction in revenues between two alternate options. Whereas assessing the profitability of a proposed different, incremental revenues are in contrast with incremental prices.

Added Worth

Added worth means worth addition to any product. Worth addition of the product could also be because of some course of on product or to make the product obtainable or there could also be different causes; however it additionally consists of the revenue share on it.

Pressing Price

There are some bills which might be to be incurred on a direct foundation. Delaying such bills might lead to loss to enterprise. These bills are referred to as pressing value. Pressing prices usually are not be postponed.

Postponable Price

With out avoiding any bills, if we’re capable of defer some bills to future, then it’s referred to as a postponable value.

Pre-production Price

The price incurred earlier than commencing formal manufacturing or on the time of formation of recent institution or venture known as pre-production value. A few of these prices are of capital nature and a few of these are referred to as deferred income expenditure.

Analysis Price

Analysis prices are incurred to find a brand new product or to enhance an current product, technique, or course of.

Coaching Price

The prices incurred on instructing, coaching, apprentice of employees or employee inside or exterior the enterprise premise to enhance their abilities known as coaching value.