Cost Accounting

INTERNATIONAL ISLAMIC UNIVERSITY, ISLAMABAD

FACULTY OF MANAGEMENT SCIENCES (Department of Accounting & Finance)

TITLE OF DEGREE PROGRAM

:

BBA Program

DEFINATION OF CREDIT HOURS :

3

DEGREE PLAN:

Compulsory

PREREQUISITES:

Principles of Accounting (ACT-201)

COURSE OFFERED:

Semester 3

COURSE TTLE:

Cost Accounting (ACT 301)

Course Objectives and Outcomes: 1. To provide the students with an appropriate knowledge of Cost Accounting 2. To apply cost methods and techniques for preparing and presenting information for decision-making and cost control, and 3. To prepare standard costs and variances 4. To understand cost concepts, objectives, scope, cost flow and classification 5. To prepare cost of production report and cost statement under process cost accounting system and job order costing system, respectively 6. To understand and explain material, labor, factory overhead costing and control 7. To calculate and interpret material, labor, overheads variances. How Program Content Meets The Program Objectives? Cost information are one of the most important input to good decision making. Understanding of different cost concepts, cost elements, cost flow and cost accumulation enables the students to base their decisions on objective information. Text Books: ESSENTIAL TEXT: Cost Accounting: by F. Usry, H. Hammer & Adolph Matz T. Lucy 7th Edition FMS, IIUI

Lectures: The medium of instruction will be English. Instructional methods will vary with each instructor. However, some suggested techniques are • Quizzes and other tests with feedback and discussions; • Problem Solving • Lectures and class discussions; • Power Point Presentations; • Guests Speaker; • Group Activities; • Oral reports and other student presentations; • Web based assignments and activities General Rules and Procedures 1. Students unable to submit an assignment on the due date should discuss the matter in advance with the professor. At the professor’s discretion, late assignments may not be accepted. Where late assignments are accepted, the professor will apply a late penalty. 2. Test dates and assignment due dates are announced in class. Students are responsible for keeping track of these dates. There will be no makeup quiz, midterm or final for any reason whatsoever. 3. Success in this course is based heavily on in-class participation and assignments, therefore; attendance and active in-class participation is essential to a student’s success. All in-class assignments must be completed in-class; they cannot be made up with a take-home. Failure to attend these classes will therefore result in zero in that particular assignment. Course Assessment Midterm exam Assignments, Projects Quizzes Final

20% 20% 10% 50%

Topics Covered 1. 2. 3. 4. 5.

Concepts and Scope of Cost Accounting Financial Statements: The Bases for Planning and Control The Cost Accounting Systems: Design and Operation Job Order Costing Process Costing: Cost of Production Report; Lost Unit Calculations, Addition of Materials; Average and FIFO Costing 6. Factory Overhead Costing and Control FMS, IIUI

7. Material Costing and Control 8. Labor Costing and Control 9. Absorption Costing and Variable Costing 10. Standard Costing 11. Marginal Costing and Break-even Analysis 12. Budgeting: Profits, Sales, Costs and Expenses

Week Week 1

Week 2

Topics Concepts and Scope of Cost Accounting Definition and concept of cost, Cost object, Cost elements, Sources and uses of cost data, Cost accounting v/s financial accounting, Costing department and its relationship with other departments, Role of cost accounting in a management information system, Uses of cost data.

Suggested Reading Chapter 1

Financial Statements: The Bases for Planning Chapter 2 and Control The Reporting Function, Financial Statement in the Annual Report, The Flow of Costs, General and Cost Accounting Principles and Practices

Week 3

Cost Classification and Flows Direct and indirect cost, Product and period cost, Controllable and uncontrollable cost, Fixed and Chapter 3 variable cost, Semi-variable and step fixed cost Cost flow, Statement of cost of goods manufactured and sold.

Week 4

The Cost Accounting Systems: Design and Operation Fundamentals of a Cost Accounting Information System, Chart of Accounts, Data Processing by Means of the Journal Voucher, Control System, Chapter 4 The Manufacturing Cost Accounting Cycle, The Factory Ledger

Week 5

Job Order Costing Cost Systems: Actual or Standard, Cost Chapter 5 Accumulation, Procedures: Job order of Process, Job Order Cost Accumulation Procedures, Practice Questions

FMS, IIUI

Week 6

Process Costing: Cost of Production Report; Chapter 6 Lost Unit Calculations Characteristics and Procedures of Process Costing, Costing by Departments, Product Flow, Procedures for materials, Labor and Factory Overhead Costs The Cost of Production Report

Week 7

Process Costing: Addition of Materials; Average Chapter 6 and FIFO Costing Increase in Unit Cost due to Addition of Materials, Increase in Unit Cost and Change in Unit Cost due to Addition of Materials, Beginning Work in Process Inventories, Difficulties Encountered in Process Cost Accounting Procedures

Week 9

Factory Overhead Costing and Control Chapter 6 Classification and collection of overhead, Predetermined overhead applied rate, Factory overhead cost: planned applied and actual, over and under applied factory overhead and its disposal, Departmentalization of overhead, Allocation, apportionment and reapportionment of overhead costs, repeated distribution and algebraic method for reciprocal, service department costs.

Week 10

Week 11

Week 12

Material Costing and Control Procedure of material procurement, Two-bin system, The use of FIFO, LIFO and weighted average for material valuation and the pricing for material issue, Stock taking and perpetual inventory, Treatment of differences between physical and book stock, Economic order quantity, Effect of quantity discount on EOQ, Reorder level, safety stock and maximum stock, ABC Control

Chapter 7

Labor Costing and Control Direct and indirect labor, Productivity and Chapter 8 efficiency, Remuneration methods, Straight piece rate and differential piece rate, Incentive wage plan, Group bonus, Time sheet and job cards, Overtime and idle time, Payroll, Labor turnover rate. Absorption Costing and Variable Costing Treatment of period and product costs, Principle Chapter 9 guiding the treatment, Use of variable costing, FMS, IIUI

Practice questions Week 13

Standard Costing Preparation of standard cost, Material price and Chapter 10 usage variances, Labor rate and efficiency variances, Variable overhead expenditure and efficiency variances, Fixed overhead budget and volume variances.

Week 14

Marginal Costing and Break-even Analysis Chapter 11 Marginal cost and contribution margin, Contribution margin to sales ratio (C/S ratio), Break-even in units and value, Margin of safety ratio (M/S ratio), Break-even graph

Week 15

Budgeting: Profits, Sales, Costs and Expenses

Week 16

Presentations, Revision & Practice Session

Profit Planning, Principle of Budgeting, The complete periodic Budget

FMS, IIUI

Chapter 12