In: Accounting
1.
v. What is the meaning of Material Control in Cost Accounting ?
vi. Explain Cost Unit with an Example ?
Ans.1.
V. Material cost is the cost of raw materials used in production of a product. It is the main element of cost and comprises a major portion of the cost. Materials cost can further be classified based on its traceability to the final product as :
i. Direct materials cost : This is cost associated with prime raw material used in producing the product. For example- in producing a garment, the fabric used is the direct material. It comprises a major portion of the cost of the garment and can be traced directly to finished product as to how much fabric is used per unit of garment produced.
ii. Indirect material cost : This is the cost of indirect materials used in production of the product. In the above example of producing a garment, the cost of thread roll used in stitching would be an indirect material cost. Indirect material cost is generally not directly traceable and cannot be assigned cost per unit of finished product.
VI. Cost unit is the unit of measurement in which we express cost of finished product we have produced to sell or the cost of service we have made ready to provide (offer to sell).Cost unit helps us in collating all direct and indirect costs incurred in production and ultimately expressing the total cost (and also individual costs) per quantity of product or service, which ultimately helps in determining selling price by adding desired profit margin. It also helps in cost control activities. Examples of cost unit are: For a Company producing candy bars, the cost unit would be per candy bar, for a Company producing edible oil, the cost unit would be per litre, for a Company producing tables, the cost unit would be per table. Similarly, for Companies rendering services such as a business consulting firm, the cost unit would be per consulting assignment, for a doctor, the cost unit would be per patient, for a cyber café providing net browsing facility, the cost unit would be in terms of time like per hour of browsing or per half hour of browsing.