Basics of Cost Accounting
Know what things ACTUALLY cost.
Why Cost Accounting?
Financial accounting → For external (investors) Cost accounting → For internal (management decisions)
Types of Costs
1. Direct vs Indirect
Direct: Can trace to product
- Raw material, direct labor
Indirect (Overhead): Can't trace
- Factory rent, supervisor salary
2. Fixed vs Variable
Fixed: Doesn't change with production
- Rent, salaries (₹50K whether you make 100 or 1000 units)
Variable: Changes with production
- Raw material (more units = more material cost)
Break-Even Point
Where Total Revenue = Total Costs
Fixed Cost = ₹5L/month Variable Cost = ₹50/unit Selling Price = ₹100/unit
Contribution per unit = 100 - 50 = ₹50
Break-even = Fixed Cost / Contribution = 5,00,000 / 50 = 10,000 units
Sell 10,001st unit → Start making profit!
🎯 Business Decision
Accept order below selling price?
If price > variable cost AND you have capacity → YES!
Example: Order at ₹70/unit (your variable cost ₹50)
Contributes ₹20 toward fixed costs → Accept it!
Quiz
Test Your Knowledge
Test Your Knowledge
Question 1 of 1
1. What is the main concept covered in this lesson?
Key Takeaway: Understanding Basics of Cost Accounting is essential for making informed financial decisions.