COST Notes class 11

📘 Cost Notes – Class 11

📌 1. Meaning of Cost

• Cost refers to the amount of expenditure (actual or notional) incurred on or attributable to a specified thing or activity.

• It includes expenses on materials, labor, and other expenses.

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📌 2. Costing

• Costing is the technique and process of determining the cost of a product or service.

• It involves methods like job costing, process costing, batch costing, etc.

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📌 3. Cost Accounting

• Cost Accounting is the branch of accounting dealing with recording, classifying, analyzing, and allocating expenditures for determining the cost of products or services.

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📌 4. Objectives of Cost Accounting

• Ascertain cost of a product or service.

• Fix selling price.

• Control cost.

• Help in decision-making.

• Assist management in planning and budgeting.

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📌 5. Components of Total Cost

There are three main elements of cost:

Element	Explanation	Example
Material Cost	Cost of raw materials used in production.	Wood for furniture.
Labour Cost	Wages paid to workers directly/indirectly involved in production.	Wages for carpenters.
Expenses	All other costs incurred in production.	Factory rent, power.

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📌 6. Types of Cost

Type of Cost	Meaning	Example
Fixed Cost	Do not change with the level of output.	Rent, salaries.
Variable Cost	Change directly with the level of output.	Raw materials.
Semi-variable Cost	Partially fixed and partially variable.	Electricity (fixed charge + usage).
Direct Cost	Can be directly traced to a cost unit.	Direct material, direct labor.
Indirect Cost	Cannot be directly traced.	Factory supervisor salary.

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📌 7. Classification of Cost

A. By Nature/Elements

• Direct Material

• Direct Labour

• Direct Expenses

• Indirect Costs (Overheads)

B. By Function

• Production Cost

• Administration Cost

• Selling and Distribution Cost

C. By Behavior

• Fixed

• Variable

• Semi-variable

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📌 8. Overheads

• Overheads are indirect costs which cannot be traced directly to a product.

• Types:

  • Factory Overhead (e.g., factory rent)

  • Administrative Overhead (e.g., office expenses)

  • Selling & Distribution Overhead (e.g., advertising)

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📌 9. Prime Cost and Total Cost

• Prime Cost = Direct Material + Direct Labour + Direct Expenses

• Factory/Works Cost = Prime Cost + Factory Overheads

• Cost of Production = Works Cost + Administration Overhead

• Total Cost = Cost of Production + Selling & Distribution Overheads

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📌 10. Cost Sheet Format (Simple)

Particulars	Amount
Direct Materials	xxx
Direct Labour	xxx
Direct Expenses	xxx
Prime Cost	xxx
Add: Factory Overheads	xxx
Factory/Works Cost	xxx
Add: Administrative Overheads	xxx
Cost of Production	xxx
Add: Selling & Distribution Overheads	xxx
Total Cost	xxx

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📌 11. Importance of Cost Accounting

• Helps in cost control.

• Aids in budgeting and planning.

• Facilitates pricing decisions.

• Identifies unprofitable products/activities.

• Assists in inventory valuation.