Cost & Management Accounting
Cost & Management Accounting
Cost & Management Accounting
Introduction
Financial Accounting: It is “the art of recording,
classifying and summarizing in a significant manner
and in terms of money, transactions and events,
which are in part at least, of a financial character and
interpreting the results thereof”
Statutory Maintenance of cost records has It is purely voluntary and its use
requirement been made compulsory in selected depends upon the utility of
industries as notified by the govt. management
from time to time
Cost Accounting vs Management Accounting
Basis Cost Accounting Management Accounting
Data base It is based on data derived It is based on data derived from
from financial accounts financial accounting, cost accounting
and other sources
(A) Material
(B) Labour
(C)Expenses
Elements of Cost
Selling
Factory / Works Administration & Distribution
Overheads Overheads Overheads
Material Cost
The cost of commodities and materials used by the
organization. It includes cost of procurement, freight inwards,
taxes, insurance etc.
Direct Material Cost –
all raw materials, either purchased from outside or
manufactured in house, that can be conveniently identified
with and allocated to cost units.
It generally becomes part of the finished product. However in
many cases a material becomes part of finished product but
not considered as direct material because the value of such
material is so small that it is quite difficult and futile to
measure it. e.g. nails in furniture, thread in garments etc.
e.g. Cotton used in a textile firm, Clay in bricks, leather in shoes
Cloth in garments, Timber in furniture etc.
Indirect Material Cost –
material which cannot be identified with the
individual cost centre, assist the manufacturing
process and does not become an integral part
of finished goods.
These are minor in importance i.e. small and
relatively inexpensive items which may become
the part of finished product. E.g.
Consumable stores, pins, screws, nuts and
bolts, thread etc.,
also those items which do not become part of
finished product e.g. coal, Cotton, oils and
lubricants, stationary material, sand paper etc.
Labour Cost
The cost of remuneration (wages, salaries, bonus, commission
etc.) paid to the employees of the organisation.
Direct Labour Cost –
identified with the individual cost centre i.e. it can be
conveniently identified with a particular product, job or
process and is incurred for those employees who are engaged
in the manufacturing process.
Indirect Labour Cost –
cost which cannot be identified with the individual cost centre
and is incurred for those employees who are not engaged in
the manufacturing process but only assist.
wages paid to foreman/storekeeper, salary of works manager,
Accountant/Personnel dept. salaries etc.
Expenses
This is the cost of services provided to the organisation and the
notional cost of assets owned.
Direct Expenses Cost –
Expenses which can be identified with and allocated to individual
cost centers or units.
Also known as chargeable expenses
Hire charges of machinery/equipment for particular job, cost of
defective work , cost of patent rights, experimental cost, cost of
special design, drawings, layout, royalty, depreciation on plant
etc.
Indirect Expenses Cost –
Expenses which cannot be identified by individual cost centers.
Rent , Telephone expenses, Insurance, Lightening , Advertising,
repairs etc.
Direct Material Cost
+
Direct Labour Cost Prime Cost
+
Direct Expenses Cost
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Costing P&L Account
No. Particulars Amount Per Unit
FG Stock Adjustment
I + Opening Stock of FG
- Closing Stock of FG
(1)
(1)Income
IncomeMeasurement
Measurement
(2)
(2)Profit
ProfitPlanning
Planning
(3)
(3)Cost
CostControl
Control
(4)
(4)Special
SpecialSituations
Situations
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COST CONCEPTS RELATING TO
INCOME MEASUREMENT
(i) (ii)
(ii)Absorbed
AbsorbedCosts
Costs
(i)Product
ProductCosts
Costs and
and
andPeriod
PeriodCosts
Costs andUnabsorbed
Unabsorbed
Costs
Costs
(iii)
(iii)Expired
ExpiredCosts
Costs (iv)
(iv)Joint
Jointproduct
product
and
andUnexpired
Unexpired Costs
Costsand
andSeparable
Separable
Costs
Costs Costs
Costs
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(i) Product costs and Period costs
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Example 1: Absorbed, Underabsorbed and Overabsorbed Costs
Suppose that fixed costs are Rs 30,000 and the normal production is
15,000 units. The standard fixed overhead rate (SFOR) of recovery is
Rs 2 per unit (Rs 30,000 ÷ 15,000 units). In other words, every unit of
production absorbs Rs 2 of fixed costs.
If the company produces 10,000 units, the total absorbed costs will be Rs
20,000 (10,000 units × Rs 2, SFOR). Obviously, Rs 10,000 constitutes
unabsorbed costs (Rs 30,000, actual cost – Rs 20,000, absorbed costs).
In the above example, if the company produces 16,250 units, the costs
charged to production will be Rs 32,500 (16,250 units × Rs 2, SFOR). The
overabsorbed cost will be Rs 2,500 [Rs 30,000, actual fixed costs (AFC) –
Rs 32,500 charged to production]. Figure 1 portrays these relationships.
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Absorbed costs = Units produced × SFOR
Unabsorbed costs = [AFC – (Units produced × SFOR)]
Overabsorbed costs = [Units produced × SFOR) – AFC]
32,500
Over-absorption
30,000 FC Line
Under-absorption
Full absorption
1,5000
) s eepur ni ( s daehr ev O dexi F
Y
10,000 1,5000 1,5000
Volume of Activity (in Units)
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COST CONCEPTS RELATING TO PROFIT
PLANNING
(i)
(i)Fixed,
Fixed,Variable
Variableand
andSemi-
Semi-
variable/Mixed
variable/MixedCosts
Costs
(ii)
(ii)Future
FutureCosts
Costsand
andBudgeted
Budgeted
Costs
Costs
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Fixed Costs
Fixed (non-variable) costs do not change with changes in
volume of output or activity within a specified range of
activity/output (relevant range) for
a given budget period.
Y Y
10,000 10
2
pur ni ( t s oC dexi F egar ev A
s ee pur ni ( t s oC dexi Fl at oT
X X
0 0
2,000 4,000 6,000 8,000 10,000 2,000 4,000 6,000 8,000 10,000 X
Volume of Activity (in Units) Volume of Activity (in Units)
Figure 2: Volume and Total Fixed Costs Figure 3: Volume and Fixed Costs Per Unit
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Variable costs
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Table 2: Production Volume and Variable Costs
Production (unit) Material costs Labour costs Total variable cost
1 Rs 5 Rs 2 Rs 7
10 50 20 70
100 500 200 700
1,000 5,000 2,000 7,000
Y Y
ti nu r e p st s oC el bai r a V
ni ( st s oC el bai r a V l at oT
) s ee pur
X ) s eepur ni ( X
Production in Units Production in Units
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Semi-Variable (mixed) Costs
All costs which are neither perfectly variable nor absolutely
fixed in relation to volume changes
are called semi-variable (mixed) costs.
They consist of both fixed costs
and variable costs.
Y
ni ( st s oC el bai r a V-i meS
) s ee pur
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Future Costs
Future costs are costs reasonably expected to be
incurred at some future date as a
result of a current decision.
Budgeted Costs
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Cost Concepts For Control
(i)
(i)Responsibility
ResponsibilityCost
Cost
(ii)
(ii)Controllable
Controllableand
andNon-
Non-
Controllable
ControllableCosts
Costs
(iii)
(iii)Direct
Directand
andIndirect
IndirectCosts
Costs
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(i) Responsibility costs
Responsibility costs are costs which are classified/identified /accumulated
with the person(s) responsible for their incurrence.
(ii) Controllable
(ii) Controllableand
and Non-controllable
Non-controllable costscosts
Relevant
Relevantand
and Differential
DifferentialCosts
Costs
Irrelevant
IrrelevantCosts
Costs
Out-of-pocket
Out-of-pocket Opportunity
OpportunityCosts
Costs
Costs
Costsand
andSunk
Sunk and
andImputed
ImputedCosts
Costs
Costs
Costs
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Relevant and Irrelevant costs
Not all costs are relevant for specific decisions. Costs which are
influenced by a decision are a relevant. These are future cost which
are affected by a decision being made and cost which is not affected
by a decision is irrelevant cost.
Differential costs
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Out-of-pocket costs and Sunk costs
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Marginal Cost
Conversion Cost
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Assignment on:
Consumption & Costing of Apparel Production
Submitted To:
Md. Bashir Ahmed
Lecturer of
BIBT University College
Submitted By:
Sazzad Hossain Sakib
Department: AMT
Student ID: 1502019
Reg. No: 14505000088
Submission Date:
29-08-2018
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Consumption & Costing
Costing: Costing is the most sensitive issues in the aspect of profit and loss in any
kind of dealings. Costing means calculating process of a product to fix profit and loss
mathematically. RMG sector is a business where so many guys have to perform to
achieve a particular target. It is a hard working track where every minute is counted.
Costing of a garment is a mandatory task for an RMG merchandiser, especially in soft
line. Overall chance of getting order and profit depends on it simultaneously. Product
costing is a vital matter to know profit and loss in apparel industry. It is not only
mandatory in apparel industry but also other industry should calculate product
costing accurately. Otherwise, that business will not run a long time. It’s probably
one of the toughest tasks for someone to find out accurate product pricing. There
are two main hazards and someone should be aware of under pricing and overpricing
while evaluating and planning overall business strategies. Causes, both elements are
harmful for any organization. It’s a general trend for all to gain profit by selling a
product.
Costs to Consider:
• Direct cost: Cost of raw material — 66%. Cost of size and chemicals – 4%.
Production cost comprising of running the machine, maintenance, power
fuel, humidification and other utilities — 8 % and worker wages and
salaries — 8% losses incurred due to shrinkage, wastage, grading, and also
selling commissions.
• Indirect cost: Interest on investment, loan, working capital, depreciation,
etc. Above 7%, overheads and administrative expenses like traveling,
telephone, couriers, legal issues, taxes comprising of 7%.
• Profit: 10 – 20% depending on the order size. In some companies, 70% of
the fabric cost will comprise of direct cost, but incorporate selling only 40%
cost of the fabric is direct cost and 60% is overheads.
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Consumption & Costing
There are some parameters which should be taken into consideration while
doing costing. Following parameters need to be counted for garments costing:
Quantity of garments
Fabric consumption
Nature of fabric
Knitting pattern
Yarn content
Yarn count and type
Yarn cost per kg.
Cost of accessories like hangers, cartons, ply-boards, poly-bags etc.
Cost of trims likes hangtags, labels, badges, buttons, bows, twill tapes, etc.
Other operational charges like heat seal, print, embroidery, washing etc.
CMT charges.
Design and pattern of garments
Packing method and assortment
Any restriction on use of dyes and chemicals
Tolerance in dye lot and shade variation
Type of dyes and chemicals to be used
Number of garments to be packed per poly, blister and carton box
Quality of carton box, type and thickness of poly bag
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Consumption & Costing
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Consumption & Costing
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Consumption & Costing
Fabric consumption
Once the sample is approved and a pattern is developed, the amount of fabric
required per unit is calculated. The fabric cost constitutes 60 to 70 percent of the
total garment making cost. The fibre content, spinning process used, fabric GSM
(Gram Square Meter), and the percentage of shrinkage and wastage in the fabric are
also determined while deriving the cost. The consumption for knitted garments is
determined in kilograms while for woven it is determined in yards. Two popular
systems used for the calculation of amount of fabric required per garment are
mathematical and marker planning systems.
For knitted garments, the Gram Square Meter (GSM) of the fabric plays a vital role in
costing. The type of machines, fabrics & blends, and configurations used for knitting
the fabric of the garment affects the price of making. Similarly for woven apparels,
the Ends per Inch (EPI) are taken into account. The bigger the beaming length, the
lesser will be the cost of weaving. Hence, the beam size can increase or decrease the
cost of making a garment. The kinds of weave like twill, satin, and plain and the sort
of machineries used for the particular garment influence the weaving cost.
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Consumption & Costing
# A T-shirt Body length is 72 cm, Half Chest 33 cm, Sleeve length 24 cm,
Armhole 38 cm, Fabric GSM 180. Find out fabric consumption of per dozen T-
shirt.
Consumption:
(Body L + Allowance )×(Width +Allowance )×GSM ×No .of parts ×12
Formula:
10000000
Here given,
Body length= 72 cm
Armhole= 38 cm
Half chest= 33 cm
GSM=180
Sleeve length= 24 cm
Sleeve Consumption
(Body L + Allowance )×(Width +Allowance )×GSM ×No .of parts ×12
=
10000000
(24 +2)×(38+1)×180 ×2 ×12
=
10000000
= 0.438048
= 0.44 kg
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Consumption & Costing
Note: By this excel sheet any one can do consumption of any knit garments easily by
input only measurement. Here no need to calculate manually but need to add
allowance.
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Consumption & Costing
# A Shirt Front length is 30 inch, across chest 18 inch, back length 32 inch,
across back 14 inch, sleeve length 30 inch, armhole 18 inch, Fabric width 60
inch. Find out fabric consumption of per dozen shirts.
Consumption:
(Body L + Allowance )×(Width +Allowance )×No .of parts ×12
Formula:
Fabric Width ×36
Here given,
=3.85 yds
=3.33 yds
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Consumption & Costing
=5.5 yds
Total = (3.85+3.33+5.5)
=12.68+3%
=13.1 yds/dozn
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Consumption & Costing
Note: By this excel sheet any one can do consumption of any woven garments easily
by input only measurement. Here no need to calculate manually but need to add
allowance.
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Consumption & Costing
# A t-shirt, which requires 7 kg fabric to produce per dozen product. For 75000
pcs product how much will be cost?
Solution:
Raw material (Fabric) = (7×3.50) $
= 24.5 $
Accessories (Package) =3 $
Commercial =0.4 $
Total =28.83 $
So the cost will be 28.83 $ per dozen. Then need to be adding company profit,
buying house commission.
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Consumption & Costing
# calculate factory overseas and FOB price for per dozen T-shirt. Total products
are 200000 and total days invest 4 days fabric 6.5 lbs/dzn.
Solution:
Factory Overhead cost per month:
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Consumption & Costing
FOB Price:
Calculation for per dozen:
=$6.53×1.3
=$8.49
Accessories = $2.85
Trims =$3.00
$103326 ×4×12
=
30×200000
=$0.83
Commercial =$0.40
Total =$15.57
Total =$17.13
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Consumption & Costing
Question: Let us- Women’s 100% acrylic, 7 GG, round neck, full sleeve pullover with
black & white stripe. Approximately 11 pound per dozen. Order quantity is 50000
pcs. Now how much yarn of each color we need to execute this order? Stripe height
black color 5.2cm & white color 4.8cm, body length 70cm.
Solution:
Let,
Black yarn = A
White yarn = B
Black, A% = 52%
White, B% =48%
=24541.7 lbs
= (5.28+3%)× 50000 ÷ 12
=22666.7 lbs
So, we will need 24541.7 lbs of black yarn and 22666.7 lbs of white yarn.
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Consumption & Costing
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Consumption & Costing
Button Consumption
Buttons can be made up of different types, nylon buttons, plastic buttons, acrylic
based buttons, wood, shell, metal. Every type of button has its own MOQ decided by
manufacturer of button. Buttons are purchased on gross with the line specified.
Zipper Consumption
zippers also has several types like metallic zipper, nylon zipper etc. which plays the
drastic role in cost of zipper. Merchandiser should be aware of the parameters of
zipper for accurate costing and negotiation. MOQ is the parameter which affects the
cost of zipper considerably; at certain MOQ only zipper will get at desired price.
Label Consumption
Several labels are used in garment i.e. main label, care label, content label, the cost
of label depends upon make of label i.e. fibre content, printed, jacquard label, size of
labels, colors used in label, etc. for a unit garment label cost may not play a
significant role but in case of mass production it plays vital role. The other factors
that are important while ordering the labels are MOQ, order quantity.
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Consumption & Costing
Hangers Consumption
Hangers are made up of generally hard plastics sometimes wood, the cost of hanger
is depend on material used, size, print and color on it. Generally transparent hangers
are more costly than colored one.
Carton Consumption
For carton consumption need height, width and length.
= …….. m2
Embroidery Consumption
𝑛𝑛𝑛𝑛 .𝑜𝑜𝑜𝑜 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 ℎ 𝑖𝑖𝑖𝑖 𝑡𝑡ℎ𝑒𝑒 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑜𝑜𝑜𝑜𝑜𝑜 ×𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔 𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞
No. of stitch unit =
12000
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Consumption & Costing
Subject: Print
# assumes you have an order of 200000pcs chest printed t shirt. Dry weight of a cut
panel is 90 gm and after print is 105 gm. If we do basic screen print, how much
chemical of each kind we will be needed?
Solution:
Here given,
We know that,
The End
Thanks
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