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Cost Accounting

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Incoming Materials

The incoming materials should be value at invoice price plus all expenses of whatever nature incurred upto the point of placing materials in a condition suitable for issuance from the stock room. These expenses include:

(a) Transportation charges, cartage etc;

(b) Receiving, unpacking and inspecting costs;

(c) Insurance and storage costs;

(d) Accounting and purchasing costs.

In order to avoid difficulty of ascertaining costs (b), (c) and (d) for each consignment of materials received, usually they are considered as overhead costs.

Besides the above costs the basic price of materials will have to be adjusted taking into consideration the following points:

Cost of containers

The supplier of materials may charge separately for the containers that he has used for supplying materials. In case these containers are not returnable, their cost should be added to the cost of materials received. If the containers are returnable at a price less than the cost charged, the difference should be added to the cost of materials received. In case they will be accepted back at the full cost charged, their cost should be added to the cost of incoming materials.

Discount

Discount may be of the following types:

Trade discount

Trade discount refers to the allowance which is allowed by the seller to a buyer who has to resell the articles. It is allowed as a matter of trade policy. The allowance may be allowed to compensate costs of storage, breaking bulk, and selling and delivering in small quantities.

Quantity discount

This discount is allowed by the supplier to encourage the buyer to place large orders. Large orders give economies of large scale production to the supplier. Part of this savings he passes on by allowing him the quantity discount.

Cash discount

This discount is allowed by the seller to encourage to make prompt payment of cash. It is allowed only when the buyer makes payment by a stipulated date. Since cash discount received is an item of financial nature from cost accounts.