C3 Purchasing procedure

Purchasing procedure

1. Receiving the indents or purchase requisition
2. Ascertainment of possible sources of supply and selection of a particular supplier.
3. Placing purchase order on supplier
4. Follow-up of Purchase order
5. Receiving and inspection of materials
6. Verification and passing of supplier s invoice for payments

C3 FUNCTIONS OF PURCHASE DEPARTMENT

FUNCTIONS OF PURCHASE DEPARTMENT
Routine Functions
1. collection and registrations of purchase requisitions or indents from the stores department and for special and urgent materials from production and consuming department
2. Ascertainment of the possible sources of supply of required materials
3. selection of right suppliers
4. placing the purchase order
5. Follow-up of the purchase order to avoid any delay in delivery
6. obtaining goods received note and inspection note to ensure that quantity and quality of materials received are according to PO
7. Returning materials which are not according to specifications or securing adjustments with the supplier on claims for discrepancies
8. Verifying the invoice with regard to quality, price and other relevant particulars and pass it for payment and sending the invoice to the accounts section.


Some other functions are
1.To collect maintain proper records and documents like catalogues, price lists,, trade magazines and journals to assist in locating the best market.
2. To develop and maintain good supplier relations
3. to serve as an information centre on materials
4. to develop standard forms and document used in purchasing process.
5.TO prepare purchase budget

C3 IMPORTANT ASPECTS OF MATERIAL COST CONTROL

IMPORTANT ASPECTS OF MATERIAL COST CONTROL
1. Purchasing of materials should be made by proper authority
2. Receiving and Inspection, recording and proper storage of material must be ensured.
3. Storing and
4. Production
5. issues should be based on authorised requisitions in writing from the needy departments
6.Adequate storage facilities must be made available

C3 OBJECTIVES OF MATERIAL CONTROL

OBJECTIVES OF MATERIAL CONTROL

1. Ensure availability of material.
2. Preserving the material by eliminating wastages
3. Adopting a system of perpetual inventory and timely reporting to management accurate information
4. Avoid over stock
5. Ensure right quality at right price
6. Keep the lowest carrying cost as far as possible.
7. Minimum cost of storage

C3 ELEMENTS OF COST

ELEMENTS OF COST

Two Types: Direct costs and indirect costs

Direct Material
raw materials,Semi-finished materials or components which become part ad parcel of the product are known as direct material.

E.g clay in bricks
wood in furniture
leather in shoe
cotton in yarn etc.

However if a material forms part of the product but is of a negligible value, it may be treated as indirect material.

E.g yarn used in making shoes
nails used in furniture making etc.

Direct Labour
labour which can be conveniently identified with and directly charged to a particular product, job, service etc. it is all labour which is expended in converting raw materials into finished products.
E.g
wages paid to labour engaged in the actual production or carrying out an operation or process or a contract.

also called direct wages, productive labour, operating labour, prime cost labour etc.

Direct Expenses

All expenses other than direct material and direct labour which can be conveniently identified with or directly chargeable to a product, job, process or service are called direct expenses. Also called chargeable expenses, prime cost expenses and productive expenses.

E.g
Cost of special patterns, designs, drawings and tools made or purchased for specific product or process, excise duty, royalty, architects feesm and hore charges of special tools and equipment used for a particular product, job or service.

Indirect Material

Material which cannot be traced in and which does not form part of the finished product. it cannot be directly charged to a particular cost centre, product, job, contract process etc.
E.g
consumable stores
lubricants
cotton waste
grease oils
chemicals added in process etc.

Indirect Labour

Cost of labour which cannot be identified with or directly charged to a product, job, process or service etc. and which is general in nature is called indirect labour. it represents cost of labour expended on auxiliary work in connection with the product manufactured. it aids and facilitated production work indirectly.

E.g wages paid to maintenance workers employed in workshops,
mechanics, cleaners, store-keepers, watch and ward and clerical staff etc.


Indirect Expenses

Expenses which cannot be directly charged to production and which are other than indirect and indirect material are called indirect expenses.
E.g
Rent
rates
insurance
taxes
power,lighting
heating, repairs , canteen expenses, hospital and dispensary expenses
office and administrative expenses, etc.

C3 TECHNIQUES OF COSTING

TECHNIQUES OF COSTING:
1.Marginal Costing:
it is a technique of cost accounting, which ascertains the marginal costs of a product or an operation by differentiating between fixed and variable costs. The technique reveals how volume and costs affect the profit

2. Absorption Costing
Under this technique both fixed and variable costs are charged to operations or processes. This is known as total cost technique. This technique is useful for preparing tenders.

3. Standard Costing
This is a technique of costing in which a comparison is made of the actual cost with predetermined (standard )cost  and the deviations if any, are corrected. useful for cost control.

4. Budgetary control
technique of controlling costs by preparing budgets, coordinating activities of various departments, pinpointing their responsibilities and continuous comparison of actual performance with the budgeted.

C3 Methods of Costing

Unit costing
costing which can be developed in industries having continuous production, the units of which are identical and standardised.

Job Costing
in which each job is taken as cost unit or a cost centre and it is appropriate for jobbing factories, assembling units etc.

Batch Costing
Extension of Job costing. A batch may represent a number of small orders passed through the factory in batch. Each batch is treated as a cost unit and costs are ascertained separately. it is useful for biscuit, cloth industries.

Contract Costing
Costing in which cost of production is ascertained for each contract, and it is applied to contract and erection industries.

Process Costing
Costing in which the product passes through a series of processes till is completed. and cost is ascertained for each process. it is suitable for industries like chemical, coal, soap. leather, timber etc.

Operating Costing
Costing which is used to ascertain the cost of services rendered. it is suitable for hospitals, hotels, transport, power supply industries.

C3 Principles of Cost Accounting

1.For each and every item of cost, cause and effect relationship should be established.
2.Should give factual picture of the profitability of a project.
3.past costs should not be recovered from the future costs.
4.Abnormal cost should not be considered in cost accounting which misleads taking decisions
5.to ensure correctness, cost ledgers and cost control account should be prepared under the principles of double entry

C3 Limitations of Cost Accounting

1. No uniformity in costing systems
2. the application of cost accounting involves too many customs and estimates.
3, it is costly and hence not suitable to small concerns.
4. fails in directing the concern how to face the inflationary conditions in future.

C3 ADVANTAGES OF COST ACCOUNTING

1. Identifies the profitable and unprofitable activities of a concern
2. provides reliable data r information for managerial decision making
3.it measures organisation efficiency and suggests the measures for improvement
4.helps in preparing renders or quotations
5.ensures future production planning
6.discloses the sources of losses and wastages
7. distinguishes efficient and inefficient workers and encourages efficiency
8.discloses sources of losses and wastages
9. discloses the liquidity and profitability position of the concern
10. helps the government in policy formulation and tax imposition.

C3 FINANCIAL ACCOUNTING AND COST ACCOUNTING

S.No	Financial Accounting	Cost Accounting
1	Have specific purpose to serve and kept in manner to present correct figures to tax authorities. Classification and recording of transactions directed towards the preparation of final accounts.	With collection, classification, analysis and presentation of costs for the guidance of management for proper planning, organization, decision making, cost control and policy formulation and for efficient successful management
2.	Accounting treat costs in very broadly	Accounting treat costs in greater detail
	Eg transaction of material purchased	Necessity of material
3	Cannot give reliable and accurate answers needed by management	Indicates the reliable answers for the queries
4	Cost of manufacture of products information will only be totals and too the end of accounting	Cost of manufacturing of products may be analyzed in terms of expenditure, departments or functions
5	Cannot reveal inefficiencies in material handling	reveal inefficiencies in material handling
6.	Cannot have proper control over materials and stores, labour  and overheads	have proper control over materials and stores, labour  and overheads
7.	Do not provide detailed classification of expenditure and draw distinction betweens costs as fixed or variable, controllable or uncontrollable etc	Can provide detailed classification of expenditure and draw distinction betweens costs as fixed or variable, controllable or uncontrollable etc
8.	Stock is valued at cost at market price which ever is lower	Stock is valued only at cost

C3 OBJECTIVES OF COST ACCOUNTING

OBJECTIVES OF COST ACCOUNTING

1. To ascertain the cost of products or services and to determine the selling price
2. To control costs
3. To provide basis for the management of formulate policies and to carry out its functions efficiently

Formulating policies are:

Determination of break even point( where there will be no profit and no loss)
Introduction of new product or new line of production
whether to shut down plant to operate at loss
replacement of existing machines for automation
whether to make or buy utilisation of idle capacity future expansion and development policies and capital outlays and so on.

4.it assists the management in carrying out it functions of planning budgeting, decision making, organising, controlling pricing and evaluating operative efficiency etc.

5. to ascertain the profitable and unprofitable lines of activities
6.to find the causes that lead to profits/losses
7.to provide basis for the preparation of budgets.
8.to check and control all types of wastages
9.to establish effective control over machines , material and overheads.
10. to help in valuation of inventory, productions

C3 Principle techniques of Costing

The Principle techniques of Costing are:
1. Marginal Costing
2. Standard Costing
3. Absorption Costing
4.Uniform Costing
5. Budgetary control

C3 PRINCIPLE METHODS OF COSTING

PRINCIPLE METHODS OF COSTING
1.JOB COSTING

Batch costing
Terminal or contract costing
Multiple costing etc.

2.PROCESS COSTING

Operation costing
Single or Output costing
operating costing

C3 COST ACCOUNTANCY DEFINITIONS

COST
An amount of Expenditure incurred on a given thing

COSTING
Technique and process of ascertaining costs

COST ACCOUNTING
Is a formal mechanism by means of which costs of products or services are ascertained and controlled

COST ACCOUNTANCY
Application of costing and cost accounting principles methods and techniques to the science art and practice of cost control and the ascertainment of profitability.
information derived used for managerial decision making