TERMS INVOLVE IN COST ACCOUNTING

1. Define management accounting.
Ans. It is that branch of accounting which provides help to management in control and decision making. It deals with the presentation of information so that it is helpful to management.

2. What are the various components of the cost?
Ans. The cost has 3 major components:
  • Material
  • Labour
  • Expenses
3.Define Breakeven point
Ans.BEP is that point where an organization neither earn profit nor suffers loss.
             When a company sells its products not more than the cost of the product, then the company is called a company working at the break-even point.

4. What is Zero Based Budgeting(ZBB)?
Ans.it is a technique of budgeting which was proposed by Peter Pyher in Texas Instrument Incorporation, USA.
      In ZBB base is taken as zero to remove the past mistakes. It is a method of budgeting whereby all the activities are revaluing each time a budget is set. Discrete level of each activity valued and a combination is chosen to match funds available

5. What are the benefits of the budget?
  • It helps in the efficient utilization of resources.
  • It helps in maintaining good result in the business.
  • It helps in preparing future policies in the business.
  • It reduces cost by increasing the span of control on the employee.
  • It leads to the definite assignment of responsibility for each function of the business.
6. What is meant by target costing?
Ans.it is the method of determining the cost of a product and service based on the price that a customer is willing to pay. Its main purpose is to lower the cost of the product to achieve the required profit. The quality of the product kept up to the mark.

7.what do you mean by Fund flow statement?

Ans. It is a statement which provides information regarding funds on a particular date. It points out the resources from where the funds are coming and the application where the funds are being invested.

8. List out the transactions which don’t affect the flow of funds.
  • If transaction effect accounts of Current category only.
  • If transactions affect accounts of fixed category only.
Current asssests————–current liabilities
Fixed assets——————-Fixed liabilities

9.Why a fund flow statement is prepared.

Ans.1.The financial consequences of business operations.
        2.The manners by which funds can be utilized to the optimum level.
        3.Where the resources are being allocated.
        4.The level of generation of funds from normal business operations.
        5.The sources of repayment of loans.

10.Direct Cost.
Ans. It is that expenses which are incurred on those items which are easily and economically traced to a product, service or job
                            
11.Indirect Cost.
Ans. It is that expenses which are not directly changeable to cost of a product.

                                    
12.Direct Material.
Ans. The raw material that is used consumed in the manufacturing process, physically incorporated in the finished product and can be traced out of the product economically is called direct material. 
Like wood in furniture.

13.Indirect Material.
Ans. It is that material which is required for production but does not become an integral part of a production. Like stationery, fevicol, lubricant oil

14.Direct Labour.
Ans. The labour which takes an active or direct part in the production is called direct labour.
Like wages of operators etc.

15.Indirect Labour.
Ans. It refers to the cost of those human being who does not take direct part ina production.
Like wages of supervision, storekeeper, director’s fee etc.

16.Direct Expenses.
Ans. These are the expenses which are directly related to cost of the product.
Like Hire of special machinery.

17.Indirect Expenses.
Ans. These expenses are not directly in nature but without these expenses, production cannot be completed.
Like rent, insurance etc.

18.Marketing margin variance.
Ans. It is nothing but sales margin variance which itself is a difference of actual quantity of sales at actual profit per unit and budgeted quantity of sales at budgeted profit per unit.

19.Variable cost.
Ans. Variable cost is the cost, which varies with the level of production,i.e as the production increases it also increases & as the production falls it also falls.
20.Fixed cost.
Ans. Fixed cost is the cost, which will remain same, whether there is any increase or decrease in the size of production. For example; Rent, salary, insurance.
It will remain fixed at all levels of production.
21.Semi-variable cost.
Ans.When the cost of products is fixed as well as a variable that is called as semi-variable cost.For example-Electricity charges, Telephone bills
22.Cost.
Ans. It refers to the number of resources given up in exchange for some goods and for services. In cost, accounting cost means an expenditure made the secure an economic benefit generally on the uses of resources that promises to produce revenue.

23.Objectives of cost accounting.
  • To ascertain the cost (per unit) of the product being manufactured by the organization.
  • To disclose the sources of wastage whether of material, time, expenses, tools, equipment. 
  • To provide guidelines for fixation of price of product or service.
  • To determine the profitability of the product
  • To help management in preparing a budget and implementing budgeting control
  • To advice management as to have the profit can be minimized.

24.Kaizen Costing.
Ans. It is the Japanese term for making an improvement to a process through small, incremental amount rather than through large innovation.
           Kaizen costing through light on a thing that a manager can do to reduce costs of an existing system.

25.Cost control
Ans. It refers to the control by a manager or accountant on all the items of expenditure and making its comparison with predetermined standard or budgets, finding out deviations with actual cost and taking corrective actions.

26. Cost reduction.
Ans. It refers to the reduction in the price the product which could be attained by improving efficiency in production or by preparing a budget.

27. Define Budget.
Ans. Budget is a detailed plan of operations for a specific period of time. A budget is prepared for the effective utilization of resources, which will help in achieving the set objectives.

28.Budgetary Control.
Ans. It refers to the system of management and accounting control by which all the operation and input are forecasted in a proper manner to achieve the best possible profits.

29.Essentials of Budgetary Control.
Ans.
  • Establishment of budget
  • Executing responsibilities in order to proper the specific tasks to attain the objectives/
  • Standard performance
  • Taking corrective actions if there is any deviation.
  • Revisions of budgets.
30.Organization Chart.
Ans. It is a chart which shows the flow of authority and responsibility of each executive clearly so that no conflict regarding duties may arise among the employees moreover it keeps in the fixation of employees for their performance.

31.Budget Manual.
Ans. It is a written booklet or rulebook in which objectives to be achieved are written clearly. It also incorporates the functions and responsibilities of each decision, reports, statements and other records. 

32. Budget Controler 
Ans. It is a person who makes out the decision for the particular budget should consent of all other committee members consent. He is usually the chief executive of the orgainization who is a technically sound person.

33.Budget Committee
Ans. It is the committee of all functional head who collectively make discussion and decision on the budgets being presented for approval.

34.Similarities between cost and management accounting.

  • Both help the management( Cost accounting helps in making calculations whereas management accounting helps in making decisions)
  • Interrelated system(Without cost accounting management accounting is useless.)
  • Continuous activities( Both are done for the whole year)
35.Working Capital.
Ans. It is needed by an organization to meet its day to day expenses. It is the difference between current assets and current liabilities of a particular date
                                       Working Capital= current assets- current liabilities

36.Economic Order Quantity.
Ans. Economic Order Quantity is also called the EOQ. It refers to that quantity of material and size of order which is to be purchased by purchase department so as to enjoy maximum quantity and minimum cost of ordering and carrying.

37.Standard Costing.
Ans. Standard Costing is a pre-determined cost i.e herein the cost of the product is determined in advance,
if the actual cost is more than the standard cost then the resources behind in are identified.
   The technique used of standard cost for cost control purpose is called standard costing,

38.Steps in Standard Costing.
  • Ascertaining the standard cost of material, labour, and overheads.
  • Measurement of actual costs.
  • Comparison of actual and standard costs.
  • Taking corrective action and improving efficiency.
39.Cash flow from operating activities.
AnsOperative activities are principal revenue-producing activities. Thus cash flow from operating activities refers to the cash generated from principal producing activities after considering the activities wherein cash has been used during production.

40.Items of cash flow from operating activities.
  1. Cash receipt from the sales of goods and services.
  2. Cash receipt from royalty, fees etc.
  3. Cash payment to suppliers of the goods or services.
  4. Cash payment to employees.
41.Cost Driver.
Ans. These are those factors that influence the cost of a particular activity. Cost drivers signify the factors which forces or the events that determine the cost of activities.

42.Cost Pool.
Ans, Cost pool lies a cost center or activity are around which costs are accumulated.

43.Homogeneous cost pool.
Ans. It is a collection of overhead cost that is logically related to the tasks being performed.

44.Material cost variance.
Ans. It is the difference between the standard cost of material allowed and the actual cost of material used.
     Material cost variance = Standard cost of material for actual output – actual cost of material used.

45.Controllable cost.
Ans. These are those costs which are influenced by the actions of a specified member of an undertaking.

46.Uncontrollable cost.
Ans. These are the costs which are not being influenced by the action of a specified member of an undertaking.

47.Disadvantages of budgeting.
  1. A budgeting system is not helpful in the show the time period.
  2. A large degree of accuracy required for budgeting is difficult to achieve.
  3. To prepare a budget, organization need an expert person.It is not possible for small organizations.
48.Production cost.
Ans. It is a cost, which is occured on the conversion of raw material into finished product i.e the cost incurred on the sequence of production.

49.Administration cost.
Ans.The cost of formulating the policies and direct the organization and controlling the operation of an undertaking which is not related to direct cost.

50. Selling cost.
Ans.The cost which is incurred in promotion sales and retaining customers. It is also called marketing cost of the company.

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