Introduction and subjects Cost accounting is the application of costing & cost accounting principle, methods & technique of the science, art and practice of the cost control ascertainment of profitability. It also includes the presentation of information derived for the purpose of managerial decision making. It is thus the science art & practice of a cost accountant.
Cost accounting Cost accounting is the formal mechanism by means of which cost of products or services are ascertained and controlled. It is a part of MIS which analyses past, present and future data to provide the basis for managerial action.
Costing Costing is the technique and process of ascertaining costs. It should not be confused with the cost accounting . Costing can be carried out by the process of arithmetic , but the cost accounting denotes the formal mechanism by means of which cost are ascertained.
Budgetary control It is a means of control in which the actual state of affair is compared with that planned for so as to obtain a measure of control over the operation and operating costs of that undertaking
Cost controlIt includes : planning, communication, motivation, reporting, and decision making. A suitable cost control system helps in maintaining expected return on capital employed, increasing productivity of men, machine and other resources, fixing price and economical stability of the organisation.
Cost analysis Cost are properly analyzed according to behaviour. Examples: fixed, variable and semi-variable or relevancy e.g. relevant cost or irrelevant cost for the purpose of managerial decision making, such as make or buy, replacement of plant and introducing a second shift, etc.
Cost audit It is the verification of the correctness of cost accounts and check on the adherence of the cost accounting plan. It is essential where cost accounting is carried out on a large scale .
Elements of costMaterial-This is the cost of commodities and materials used by the organization.Direct material- which becomes integral part of finished goodsIndirect material- can’t be identified with the individual cost centre as lubricants, stationery, consumable goods etc.
Elements of cost Labour-cost of remuneration paid to the employees of the organisation.Direct-the labour cost which can be identified with the cost centreIndirect- which can’t be identified with the cost centre as storekeeper’s salary etc.
Elements of cost Expenses- cost of service provided to the organization including (Assets cost)Direct exp.- Hire charges of machinery etcIndirect- Rent, Telephone bill etc.
The aggregate of Direct Material cost, Direct Labour cost and Direct expenses is termed as ‘PRIME COST’ The aggregate of Indirect Material cost, Indirect Labour cost and Indirect expenses is termed as ‘overheads’
COST CENTRE Cost center is defined as a location, person, or time of equipment in or connected with an undertaking, in relation to which cost may be ascertained and used for the purpose of cost control. Impersonal & personal Production and service