Fresh ICWA Interview Preparation Guide

Download PDF

Under Simple average method the simple average of the prices of the lots available for making the issues is considered for pricing the issues. After the receipt of new lot, a new average price is worked out. This method is suitable if the material is received in uniform quantity.
Under Weighted average method the price of each lot and the quantity of the same is considered. This method proves to be very useful in the event of varying prices and quantities. It is very simple to calculate.

★ The classification of total cost as variable cost and fixed cost is difficult as no cost can be completely variable or completely fixed.
★ Fixed costs are eliminated for the valuation of inventory of finished goods and semi-finished goods in-spite of the fact that they might have been actually incurred.
★ It does not provide any standard for the evaluation of performance.
★ Fixation of selling price on marginal cost basis may be useful for short term only and may be dangerous in the long run.
★ It does not consider the fixed overheads.
★ It can be used for assessment of profitability only in the short run.

★ Element wise Classification
★ Function wise Classification
★ Variability wise Classification
★ Control-ability wise Classification
★ Normality wise Classification

★ Factory Overheads
★ Administration Overheads
★ Selling and Distribution Overheads

★ Fixed Overheads
★ Variable Overheads
★ Semi-variable Overheads

Control-ability wise Classification:
• Controllable Overheads
• Uncontrollable Overheads

Normality wise Classification:
★ Normal Overheads
★ Abnormal Overheads

★ Indirect Material
★ Indirect Labor
★ Indirect Expenses

★ Bin Card is a quantitative record of receipts, issues and closing balance of an item of material. Whereas Stores ledger records not only quantities received or issued or in stock but also the financial expressions of the same.
★ Bin Card is maintained by stores department while stores ledger is maintained by costing department.
★ Maintenance of stores ledger provides a second check on maintenance of bin cards.

★ It will block a large amount of working capital.
★ More storage facilities will be required.
★ Risk of deterioration of quality and obsolescence of material.
★ More attention will be required in material handling and up keeping.
★ Additional Insurance cost.

Expenses is the cost of services provided to the organization. It can be direct or indirect. Direct expenses are those expenses which can be identified with the individual cost centers. Indirect expenses are those expenses which cannot be identified with that individual cost centers.

Material Cost is the cost of commodities and material used by the organization. It can be direct and indirect material. Direct material indicates that material which can be identified with the individual cost center and which becomes an integral part of the finished goods. Indirect material indicates that material which cannot be identified with the individual cost center. This material assists the manufacturing process and does not become an integral part of finished goods.

Labor cost is the cost of remuneration paid to the employees of the organization. It can be direct or indirect. Direct labor cost indicates that labor cost which can be identified with the individual cost center and is incurred for those employees who are engaged in the manufacturing process. Indirect labor cost indicates that labor cost which cannot be identified with the individual cost center and is incurred for those employees who are not engaged in the manufacturing process but only assist in the same.

Elements of costs:
★ Material Cost
★ Labor Cost
★ Expenses

★ Nature of the Product
★ Nature of the Organization
★ Manufacturing Process
★ Simplicity and Cost
★ Reporting Systems

Direct Cost also termed as Prime cost. It indicates that cost which can be identified with the individual cost center. It consists of direct material cost, direct labor cost and direct expenses.

Indirect cost also termed as Overhead. It indicates that cost which cannot be identified with the individual cost center. It consists of indirect material cost, indirect labour cost and indirect expenses.

Fixed Cost indicates that portion of total cost which remains constant at all the levels of production. As the volume of production increases, per unit fixed cost may reduce, but not the total fixed cost.

Semi-variable cost indicates that portion of the total cost which is partly fixed and partly variable in relation to the volume of production.

Variable indicated that portion of the total cost which varies directly with the level of production. The higher the volume of production, the higher the variable cost and vice versa, though per unit variable cost remains constant at all the levels of production.

Abnormal cost indicates that cost which is normally not incurred at a certain level of output under normal circumstances.

Normal cost indicates that cost which is normally incurred at a certain level of output under normal circumstances.

Controllable cost indicates that cost which can be controlled by a specific number of persons in the organization

Uncontrollable cost indicates that cost which cannot be controlled by a specific number of persons in the organization.

Following are the different types of cost:
★ Direct Cost
★ Indirect Cost
★ Fixed Cost
★ Variable
★ Semi-variable cost
★ Controllable cost
★ Uncontrollable cost
★ Normal cost
★ Abnormal cost