How To Prepare CS Executive Costing

How To Prepare CS Executive Costing

How To Prepare CS Executive Costing : Introduction

The subject ‘Cost and Management Accounting’ is very important and useful for optimum utilisation of existing resources. These are branches of accounting and had been developed due to limitations of financial accounting. Keeping in view the importance of this subject, various topics on Cost and Management Accounting have been prescribed in the syllabus of CS Executive Programme with the objective of acquainting the students with the basic concepts used in cost accounting and management accounting having a bearing on managerial decision-making.

The Cost Accounting part deals with basic concepts of Cost Accounting, elements of Cost, various methods of Costing and application of costing techniques. The basic objective of Cost Accounting part is as follows:

  • To understand the basic concepts and processes used to determine product costs,
  • To be able to interpret cost accounting statements,
  • To be able to analyse and evaluate information for cost ascertainment, planning, control and decision making, and
  • To be able to solve simple

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How To Prepare CS Executive Costing : Outline  of   the  Syllabus

The entire paper has been discussed in twelve study lessons. In starting four study lessons students will study about the basic of cost accounting, material, labour and overheads costing.

Further the ICSI  have highlighted the concept of activity based costing, cost records, different costing systems. Thereafter study focuses on the marginal costing, standard costing, budgeting & its applications for decision making in business. At last students will know about cost accounting records, cost audit and analysis & interpretation of financial statements.

How To Prepare CS Executive Costing : Index

1.Basic Concepts, 2.Material, 3.Labour, 4.Overheads, 5.Non Integrated Accounts, 6. Method of Costing (I), 7.Method of Costing (II), 8.Standard Costing, 9. Marginal Costing, 10.Budgets and Budgetary Control

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How To Prepare CS Executive CostingChapter Specific Guidance”

How To Prepare CS Executive Costing : Lesson 1 Introduction to Cost and Management Accounting
In the first chapter ‘Basic Concepts’, overview of all the concepts of Cost Accounting needs to be understood. The major parts which need to be understood are definitions and different terminologies used in Cost Accounting and the context in which these are normally used. You are required to understand the objectives and importance of Cost Accounting system and its installation in industry, relation between Cost Accounting with other fields of study and its synchronisation with other related department/ stake holders to assist the management of the Organisation. Classification of cost, various elements and components of cost and various costing methods used in different industries need to be studied carefully. Theoretical questions are generally asked from this chapter almost in every examination. To answer these questions conceptual clarity and visualisation of practical life examples are necessary.

  1. Therefore the objective of the lesson is to enable the student to understand the meaning and purpose of cost and management accounting. What are the various methods and technique of cost accounting so that various information can be provided to management for decision making. After going through this lesson the students will be able to
  2. Understand the nature, scope and utility of cost accounting, management accounting and cost accounting standards.
  3. Understand how cost accounting arises out of the need to make business decisions.
  4. Difference between cost accounting, management accounting and financial accounting.
  5. To familiarize with costing terminology.
How To Prepare CS Executive Costing : Lesson 2 Material Cost
The second chapter ‘Material’ is very important for the students. Students shall understand the concept, need and importance of materials in production system, various procedures involved in procuring, storing and issuing of You must know the treatment of excess/ shortage of stores and valuation of store to be received, issued & stock at hand. Components which should form part of value of material should be understood; you may refer illustrations given in the Study Material. Generally problems on EOQ are solved using formula but some time instead of using formula answer to the question is required to be done in tabular format as shown in the Study Material. You should also learn to draft format of Store Ledger under different valuation methods and accounting treatment. Treatment of normal and abnormal loss of materials, waste, scrap, spoilage and defectives in the Store ledger to be understood to arrive at correct stock position and its respective value. You should clearly know the differences between Simple average method and weighted average method of stock valuation. To avoid any confusion you should read the question carefully and understand the calculation under two methods of Valuation.

  • The objectives of the lesson are to help the user:
  • Learn about inventory management policies and objectives.
  • Use inventory management tools and techniques.
  • Review financial analysis of inventory management.
  • After going through this lesson, one should be able to–
  • Understand what is meant by an inventory.
  • Identify some of the advantages and disadvantages of keeping inventory in an operation.
  • Understand the basic principles behind the quantitative approaches to deciding how much inventory to keep.
  • Describe the limitations of traditional quantitative models of inventory decision making.
  • Identify the two main approaches to managing inventory on an on-going basis.

 How To Prepare CS Executive Costing : Lesson 3 Labour

In the third chapter ‘Labour’ students shall learn and understand the need of labour cost control, methods of attendance and payroll preparation procedures. Treatment of idle time and overtime both as normal and abnormal should be clearly understood by you. Students may also refer various illustrations given in the Study material for better and clear understanding. Labour Turnover is a term which can be heard in almost every Industry; you should understand what exactly, labour turnover is, reasons for labour turnover and its impact on an organisation’s productivity directly and on image indirectly. Be conversed with various methods of computing labour turnover and Incentive plans to the workers. Students should be acquainted with of different systems of wage payment and Incentives through practicing different types of In examination generally questions are asked to compute Incentives based on a particular incentive plan or make comparison between two given plans. Students are advised to avoid selective study like only Rowan or Halsey method of bonus plan.

  1. After going through this lesson, one should be able to understand:
  2. The need of labour cost control.
  3. The classification of labour cost.
  4. The meaning of various components of labour cost i.e. idle time cost, overtime premium, labour turnover cost.
  5. Meaning of labour turnover, its reasons and remedial measures.
  6. Calculation of labour turnover ratio.
  7. Accounting treatment of overtime premium, labour turnover cost and idle time cost.
  8. Various incentive schemes i.e. Rowan Plan,Halsey Plan

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How To Prepare CS Executive Costing : Lesson 4 Direct Expenses and Overheads
The fourth chapter ‘Overheads’ in which students shall understand the meaning and difference between direct cost and indirect cost i.e. overheads. Overheads are generally associated with more than one department or product Overheads are distributed amongst the concerned departments/ product lines using a basis. Distribution of overheads is called allocation of overheads or apportionment of overheads or absorption of overheads. Understanding the meaning and differences among the terms such as allocation, apportionment and absorption of overhead is important for conceptual clarity. As stated above overheads are allocated/ apportioned/ absorbed using some basis e.g. primary distributions are done using labour hours, machine hours, floor area, capacity, number of staff etc.

Students should be versed with treatment of under absorption and over absorption of overheads through application of supplementary rate while ascertaining the cost of a particular product or department. You should also learn different methods of secondary distribution and calculation involved therein. Students should do thorough practice to avoid computational errors. Some time questions are related with capacity determination, in this regard students should be familiar with terms such as Installed/ Rated capacity, normal capacity, practical capacity, actual capacity etc. Question may be asked to calculate idle capacity and/or cost.

. After completing this chapter, one should be able to :

  1. Prepare cost estimates for allocation and apportionment of overheads, including between reciprocal service departments.
  2. Calculate direct, variable and full costs of products, services and activities using overhead absorption rates to trace indirect costs to cost units.
  3. Explain the use of cost information in pricing decisions, including marginal cost pricing and the calculation of `full cost’ based prices to generate a specified return on sales or investment.
How To Prepare CS Executive Costing : Lesson 5 Activity Based Costing (ABC)
Activity-based cost-management systems trace indirect and support expenses accurately to individual products, services and customers. ABC systems use a simple two-stage approach similar to traditional cost systems. However, instead of using cost centres for accumulating costs, it uses activities. After going through this lesson, one should be able to–

  1. Understand about basic concepts of Activity Based Costing (ABC) and its evolution its objectives.
  2. Know about the difference between Traditional Absorption Costing and Activity Based Costing.
  3. Understand about Cost drivers, its types.
  4. Understand about practical uses of Activity Based Costing.

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How To Prepare CS Executive Costing : Lesson 6 Cost Records
Cost Records have a very important role in the accounting of a manufacturing organisation. Cost records provide the details about components of cost of a product or services i.e. material, labour and overhead.

There are two system used in maintenance of cost records i.e. integrated records and non- integrated records. Under non-integrated accounting systems, Financial Accounting and Inventory/Cost Accounting books/ ledgers are separately maintained.

An Integrated Accounting System would be one where only a single set of books would contain all the information of Financial Accounting as well as Inventory/ Cost Accounting. Integrated system would be difficult to maintain if accounts are maintained manually but most available Computerized Accounting Systems are Integrated Systems. In integrated system, the problem of reconciliation of financial accounts and cost accounts does not arise.

In this chapter students shall acquainted with both Integrated and Non- Integrated systems of accounting and different ledgers account to be opened under the two methods of cost accounting. You should know the reasons for the differences between profit as per the financial accounting and the cost accounting and ways to reconcile it. Accounting treatment of over absorption and under absorption of overheads should be understood.

The objective of this lesson is to unable the student to understand

  1. The meaning of Integrated and non integrated system.
  2. Difference between integrated and non integrated systems.
  3. Accounting of cost records under integrated and non integrated system.
  4. Reconciliation of records under non integrated environment.
How To Prepare CS Executive Costing : Lesson 7 Costing Systems
The Seventh chapter i.e. ‘Method of Costing (I)’ consists of Job Costing, Contract Costing, Batch Costing, Operating Costing and Multiple Costing. Here students should understand the meaning and distinctive features of above mentioned methods of costing and the accounting procedures to be applied in the above mentioned different methods of costing. Students shall be conversed with the adjustment of opening and closing stock of raw material, work in process and finished goods while preparation of Job/ Batch cost

In Contract Costing profit from the contract is recognised using percentage of completion method.

To arrive at it various factors such as Value of contract, Cost of Work certified, work uncertified, retention money, cash received should be understood. Computation of notional profit and estimated profit shall be learned. You should understand effects of escalation clause both to contractor and contractee and revision of work certified.

This chapter  also consists of Process Costing, Operation Costing, Joint Products and By Products. Area of application of the above costing methods and accounting difference among these should be understood. Process Costing method is followed in an industry where a product passing through various identifiable processes, where output of one process becomes the input of succeeding process and so on till it reaches its final shape. Students should be able to identify each process and related cost. Production being a continuous process where some incomplete (work in process) stock remains a possibility. To find out accurate cost incurred and output for a given period ‘Statement of Equivalent Production’ is prepared. Students should be able to calculate equivalent production for a given period with the use of any methods of inventory valuation. Students may refer illustrations given in the Study material for practice and clarity. One most important area of calculation is the treatment of normal loss, abnormal losses/ gains, adjustment for scrap in ascertainment of actual abnormal loss/gain.

Some time more than one final products are obtained from a common process or input. Students shall know the treatment of joint cost to joint products for stock valuation purposes. Joint costs are apportioned using various methods such as based on sales value or based on volume etc. students may refer illustrations given in the Study Material for clear understanding. Some time questions may be asked on selling price at which a particular product can be sold or should be sold after further processing. Various illustrations have been given in the Study materials showing this type of calculations. Similarly all other methods such as operation costing and costing for By Products should be understood.


After reading this lesson, the user should be able to

  1. Understand the meaning of different costing system.
  2. Use the different costing systems in practical scenario.
  3. Understand the characteristics. Advantages and limitations of different costing systems.
How To Prepare CS Executive Costing : Lesson 8 Marginal Costing
‘Marginal Costing’ is the eighth chapter of Cost Accounting at CS Executive Course level and is one of the most vital chapter. Basic marginal equations and formulas should be understood. Students should be able to extract Profit Volume Ratio (P/V Ratio), Break Even Point/ sales, margin of safety, contribution, bifurcation of fixed cost from semi variable cost. Difference between marginal costing and absorption costing should be understood as some time you are required to reconcile figures from one method to another. Specimen Income Statement given in Study material is very helpful for clear understanding of the differences and

  1. After reading this study one should be able to understand:
  2. Concepts of marginal costing and absorption costing.
  3. Difference between absorption and marginal costing, advantages, limitations of marginal costing.
  4. How to use break-even analysis for decision making.
  5. Income statement under absorption costing and marginal costing.
  6. Practical applications of marginal costing in fixation of selling price, Key or limiting factor, make or buy decisions, selection of a suitable product mix, effect of change in price, closing down or suspending activities, maintaining a desired level of profit

How To Prepare CS Executive Costing

How To Prepare CS Executive Costing : Lesson 9 Standard Costing
The ninth chapter is ‘Standard Costing’. First of all students should understand the meaning of standard cost and what is actual The difference between standard values with actual value is called variance; Variances are calculated using some rational and conventional formulas. Formulas and its logical interlinks for finding out variances should be understood. Mere mugging up of formulas without proper understanding of its relationship will not going to help, as this chapter is just an introduction, clear understanding will definitely help students at Final level where numerical are based on practical situations. Students should also understand the accounting procedures and disposition of variances. Classification of variances and interrelationship could be understood from the chart given in the study material. This chapter requires lots of practice.

After studying this chapter, you should be able to:

  1. Explain how standard costs are set.
  2. Explain the concept of standard costing.
  3. Identify and describe the purpose of a standard costing system.
  4. Practical applications of standard costing.
  5. Compute and analyse the direct material, direct labour and overhead variances and explain how they are used for control.
  6. Calculate mix and yield variances for direct materials and direct labour.
How To Prepare CS Executive Costing : Lesson 10 Budget, Budgeting and Budgetary Control
In tenth chapter ‘Budgets and Budgetary Control’, objectives and importance of budgets and budgetary control, advantages and disadvantages of budgetary control should be understood. You are also required to learn the difference between various types of budgets and process of preparation of budgets. Generally preparation of flexible budget segregation of fixed cost and variable cost is required, so segregation techniques should be learnt (also discussed in Chapter-1). It is important for the students to understand inter linkage among different functional budget while answering question on functional budget. You may refer illustrations given in the Study Material.

After studying the lesson one should be capable to

  1. Understand Budgeting process, benefits of Budgeting, advantage of Budgetary control, limitations of budget.
  2. Prepare different types of Budget i.e. Cash Budget, Flexible Budget etc.
  3. Comparison of budgeted and actual expenses.
  4. Understand the meaning of zero base budgeting, its benefits and limitations
  5. Understand about Budget Manual, Budget Period, Budget Period.
How To Prepare CS Executive Costing : Lesson 11 Cost Accounting Records and Cost Audit
The objectives of this lesson are to enable the student to understand the meaning of cost accounting records, the purposes for which cost records are being maintained, meaning of cost audit, various techniques used in cost audit etc. The study of this lesson will help one to understand the nature, scope and utility of cost accounting records and cost audit
How To Prepare CS Executive Costing : Lesson 12 Analysis and Interpretation of Financial Statements
Ratio analysis establishes meaningful relationship between individual items or group of items which shown in the financial statements prepared by the organization. It shows the relationship between two inter-related accounting figures as current assets to current liabilities, debtors to sales, debt to equity etc.

Cash flow statement is useful in providing users of financial statements with a basis to assess the ability of the organization to generate cash and the needs of the organization to utilize those cash flows.

Fund flow statement revels the movement of funds during the year i.e. how organization got funds and how it used its fund.

After reading this lesson, the user should be able to:

  1. Understand, analyze and interpret the basic concepts of financial statements
  2. Interpretate financial ratios and their significance.
  3. Understand preparation of cash flow statement and fund flow statement.

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Important Topics of CS Executive Exam

Here we are providing subject wise important topics to CS Executive students. See below How to prepare CS Executive Module – 1 and Module – 2. Click below links

Module – 1

CS Executive Company Law

CS Executive Cost and Management Accounting

CS Executive Economic and Commercial Laws

CS Executive Tax Laws and Practice

Module – 2

CS Executive Capital Market and Securities laws

CS Executive Company Accounts and Auditing Practices

CS Executive Industrial labour and General Laws

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