ADVANCED COST ACCOUNTING NOTES IN BUSINESS

CONTENTS

CONTENTS ...............................................................................................................................
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COURSE OUTLINE ................................................................................................................
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LESSON ONE: INTRODUCTION TO COST ACCOUNTING ..............................................
1 1.1 Definition of and Scope of Cost Accounting ................................................................. 1
1.2 Purpose of Cost Accounting........................................................................................... 3
1.3 Summary ........................................................................................................................ 5
1.3 Review Questions .......................................................................................................... 5
1.4 References ...................................................................................................................... 5
LESSON TWO: COST CLASSIFICATION .............................................................................
7 2.1 A Cost............................................................................................................................. 7
2.2 Classification of Costs ................................................................................................... 7
2.3 Review Questions ........................................................................................................ 10
2.4 References .................................................................................................................... 11
LESSON THREE: COST ESTIMATION AND FORECASTING .........................................
12 3.1 Methods used in Cost Estimation and Forecasting ......................................................
12
3.2 Review Questions ........................................................................................................ 18
3.3 References .................................................................................................................... 19
LESSON FOUR: MATERIAL ISSUE AND STOCK CONTROL .........................................
20
4.1 Steps in Procurement of Materials ............................................................................... 20
4.2 Purchasing Systems ..................................................................................................... 20
4.3 Stocktaking .................................................................................................................. 21
4.4 Issue of Materials to the Production Department ........................................................ 23
4.5 Cost Minimization through Economic Order Quality (EOD)...................................... 34
4.6 Setting Material Levels ................................................................................................ 39
4.7 Review Questions ........................................................................................................ 41
4.7 References .................................................................................................................... 42
LESSON FIVE: LABOUR COSTING ....................................................................................
43 5.1 Classification of Labour Cost ......................................................................................
43
5.2 Employees Psyche ....................................................................................................... 47
5.3 Time Keeping and Time Analysis ................................................................................ 48
5.4 Gross Earning Calculation ........................................................................................... 49
5.5 Method of Labour Remuneration................................................................................. 49
5.6 Review Questions ........................................................................................................ 56
5.7 References .................................................................................................................... 57
LESSON SIX: OVERHEADS AND OVERHEAD ABSORPTION ......................................
58
6.1 Introduction .................................................................................................................. 58
6.2 Bases of Overhead Apportionment .............................................................................. 59
6.3 Overhead Absorption ................................................................................................... 64
6.4 Review Questions ........................................................................................................ 73

,6.5 References .................................................................................................................... 74
LESSON SEVEN: COSTING SYSTEMS ..............................................................................
75 7.1 Activity Based Costing ................................................................................................
75 7.2 Job Costing................................................................................................................... 77
7.3 Contract Costing .......................................................................................................... 79
7.4 Process Costing ............................................................................................................ 92
7.5 Process Costing Work in Progress ............................................................................... 97
7.6 FIFO Method ............................................................................................................... 99
7.7 Joint and By-Product Costing .................................................................................... 100



7.8 By-Product Costing .................................................................................................... 104
7.9 Service Costing .......................................................................................................... 105
7.10 Review Questions ...................................................................................................... 106
7.11 References .................................................................................................................. 106
LESSON EIGHT: STANDARD COSTING ..........................................................................
107 8.1 Introduction ................................................................................................................
107
8.2 Purpose of Standard Costing ...................................................................................... 107
8.3 Budgetary Control and Standard Costing .................................................................. 108
8.4 Setting Standard Selling Price and Margin ................................................................ 115
8.5 Review Questions ...................................................................................................... 116
8.6 References .................................................................................................................. 117
LESSON NINE: VARIANCE ANALYSIS............................................................................
118 9.1 Definition of Variance Analysis .................................................................................
118
9.2 The Purpose of Variance Analysis ............................................................................. 118
9.3 Material Cost Variance ............................................................................................... 120
9.4 Labour Cost Variances ............................................................................................... 125
9.5 Variable Overhead Variances ..................................................................................... 128
9.6 Fixed Overhead Variances ......................................................................................... 130
9.7 Sales Margin Variance ............................................................................................... 133
9.8 Sales Margin Quantity Variance ................................................................................ 134
9.9 Statements Reconciling Budgeted Profit with Actual Profit ...................................... 137
9.9 Accounting Entries for Variances .............................................................................. 142
9.10 Review Questions ...................................................................................................... 150
9.11 References .................................................................................................................. 151
Sample Paper 1 ......................................................................................................................
152 Sample Paper
2 ...................................................................................................................... 156
COURSE OUTLINE
BBM 211: COST ACCOUNTING
Pre-requisites: BBM 114 and BBM 125
Purpose: To provide the student with the knowledge of important concepts and techniques
needed by managers in planning, control, management and decision making in business
organization
Course Objectives: By the end of the course unit the student should be able to:-
Explain the importance of costing in the management of organizations
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, Apply basic costing techniques to account and accumulate input costs to various
operating activities of organizations
Differentiate the different types of costing systems and their applications to different
organizations and situations
Explain the importance of budgeting and responsibility accounting in management of
organizations
Lesson 1& 2 (Week 1) Introduction to Cost Accounting
- Definition of and Scope of Cost Accounting
- Purpose of Cost Accounting
- Cost classifications
Lesson 3 & 4 (Week -3) Cost Estimation and Forecasting
- Methods used in Cost Estimation and Forecasting
Material Issue and Stock Control
- Steps in Procurement of Materials
- Stocktaking
- Issue of Materials to the Production Department
- Cost minimization through Economic Order Quality (EOD)
- Setting Material Levels
Lesson 5 (Week 4-5) Labour Costing
- Classification of Labour Cost
- Employees Psyche
- Gross Earning Calculation
- Method of Labour Remuneration Lesson 6 (Week 6 – 7)
Overheads and Overhead Absorption
- Bases of Overhead Apportionment
- Overhead Absorption
Continuous Assessment Test (CAT 1) Lesson 7 (Week 6- 9) Costing Systems
- Job Costing
- Contract Costing
- Process costing
Lesson 8 & 9 (Week 10-13)
Standard Costing & Variance Analysis
- Purpose of Standard Costing
- Budgetary Control and Standard Costing
- Setting Standard Selling Price and Margin
- Definition of Variance Analysis
- Material Cost Variance
- Labour Cost Variances
- Variable Overhead Variances
- Fixed Overhead Variances
- Sales Margin Variance
- Sales Margin Quantity Variance Recommended Text Books:
Horngren C.T and Foster, G: (1997), Cost Accounting: A Managerial Emphasis, (9th
Edition)
T. Lucy (2002) Costing 6th Edition Biddles ltd, Guildford and King‟s Lynn
N.A Saleeni (2009) Cost Accounting Simplified, Printwell industries ltd.
Text Books for further Reading:


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, Horngren C.T Sundrem G L and Stratton W. O; (1996), An introduction to
Management Accounting, Prentice Hall International Inc
Other support materials: Various applicable manuals and journals; variety of electronic
information resources as prescribed by the lecturer




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