The origin of cost accounting, along with the origin of bookkeeping itself, is unknown.
Manuals for double-entry bookkeeping before the 19th century were common, but little or no mention was made" of manufacturing or costing methods until Charles Babbage in England (approximately 1830) presented a paper that emphasized the need for serious cost accounting
The structure of modem factory cost accounting was established before World War I.
Beginning about 1930 businessmen and economists became impressed with the magnitude of the costs of distribution and cost accountants therefore began to extend their factory techniques to cover the control of distribution activities.
The professional status of cost accounting is encouraged by organizations such as the National Association of Accountants, Controllers Institute of America, Institute of cost and works Accountants, Society of Industrial and cost accountants of Canada and similar groups.
ABC Pvt. Ltd, a new comer in small manufacturing firm of formals and casuals wears.
By considering all the factors determining cost, such as cost structure, condition of market, type of consumer, area of distribution, capacity of supply, product’s demand & supply, etc… Manager has to decided to follow the Cost Accounting for maintaining factory A/c or Manufacturing A/c.
(1) How cost Accounting helps the firm in determining the Selling Price?
Soln: - Cost accounting provides detailed and relevant cost figures for determining the selling price of products or services. However, regard must be had to the cost structure, condition of the market, the type of consumer, demand for the product and supply thereof. A cost accountant should not only accurately ascertain the total cost but also analyze such total cost under variable and fixed cost so that management may quote prices even below total cost but above variable or marginal costs for increasing volume of sales leading maximization of profit.
(2) According to you, by adopting Cost Accounting method, Can a firm prepare a Financial Statement?
Soln: - In order to prepare financial statements it is required to determine the stock-values at the end of the period over which such financial statements are to be prepared. Physical stock-taking is a lengthy procedure and the business has to be closed down for stock-taking purpose. Where cost accounts are kept, the ascertainment of the value of closing stocks of raw materials, work-in-progress and finished goods become easy and as such financial statements can be prepared monthly or even weekly.
(3) Which kind of operating policy decision can we take by using Cost Accounting Method?
Soln: - These policies may be-
Determination cost-volume-profit relationship;
Whether to shut down or operate at a loss;
Whether to make or buy from outside suppliers; and
Whether to continue with the existing plant and machinery or to replace them by improved and economic ones.
(4) From the case, what are the benefits/ Advantages enjoyed by a firm, by adopting Cost Accounting?
Establishment of more accurate unit costs.
Elimination of inefficiencies in plant operation.
Presentation of more frequent and more accurate financial accounts with the help of perpetual inventory system of stock control.