COST ACCOUNTING Cost accounting is a process of collecting, recording, classifying, analyzing, summarizing, allocating and evaluating various alternative courses of action & control of costs.
Its goal is to advise the management on the most appropriate course of action based on the cost efficiency and capability.
Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future.
Definitions Cost accounting is the process of determining and accumulating the cost of product or activity.
It is defined as, 'the establishment of budgets, standard costs and actual costs of operations, processes, activities or products and the analysis of variances, profitability or the social use of funds.
Objectives of Cost AccountingTo control cost by using various techniques such as budgetary control, standard costing, and inventory control
To provide information for decision making and planning to formulate operative procedures
To help in directing and controlling operations
To ascertain costing profit
motivate to achieve the organization's goals
Scope of Cost Accounting Cost book-keeping
It involves maintaining complete record of all costs incurred from their incurrence to their charge to departments, products and services. Such recording is preferably done on the basis of double entry system.
Cost System
Proper accounting for costs requires systems and procedures.
Cost Ascertainment
Cost ascertainment forms the basis of managerial decision making for planning and control.
Cost Analysis
It involves the process of finding out the causal factors of actual costs varying from the budgeted costs and fixation of responsibility for cost increases.
Cost Comparisons
Cost accounting also includes comparisons between cost from alternative courses of action over a period of time.
Cost Control
Cost accounting is the utilization of cost information for exercising control. It involves a detailed examination of each cost in the light of benefit derived from the incurrence of the cost.
Cost Reports
The ultimate function of cost accounting is the presentation of reports. These reports are primarily for use by the management at different levels. Cost reports form the basis for planning and control, performance appraisal and managerial decision making.
Importance of Cost Accounting1. To Management
• Helps in ascertainment of cost of process, product, activity, by using different techniques such as job costing and process costing..
• Aids in price fixation by using demand and supply, activities of competitors, market condition to a great extent, also determine the price of product and cost to the producer does play an important role. The producer can take necessary help from costing records.
Helps in cost reduction by applying cost reduction pro gramme and improved methods are tried to reduce costs.
Elimination of wastage by checking the forms of waste, such as time and expenses et
2. introduction
• Cost accounting is a process of collecting, recording, classifying,
analyzing, summarizing, allocating and evaluating various alternative
courses of action & control of costs.
• Its goal is to advise the management on the most appropriate course of
action based on the cost efficiency and capability.
• Cost accounting provides the detailed cost information that
management needs to control current operations and plan for the future.
3. Definitions
• Cost accounting is the process of determining and accumulating the
cost of product or activity.
• It is defined as, 'the establishment of budgets, standard costs and actual
costs of operations, processes, activities or products and the analysis of
variances, profitability or the social use of funds.
4. • Cost Accounting primarily deals with collection, analysis of relevant
of cost data for interpretation and presentation for various problems of
management. Cost accounting accounts for the cost of products, service
or an operation.
5. Objectives of Cost Accounting
• To control cost by using various techniques such as budgetary control, standard
costing, and inventory control
• To provide information for decision making and planning to formulate operative
procedures
• To help in directing and controlling operations
• To ascertain costing profit
• motivate to achieve the organization's goals
6. • To Measure the performance of managers and sub-units within the
organization
• To provide information regarding the cost to make and sell services
• To provide immediate information regarding stock of raw material,
semi finished and finished goods.
• To facilitate preparation of financial and other statements
• To help in estimation of costs for the future.
7. Scope of Cost Accounting
• Following functional activities are included in the scope of cost
accounting:
• Cost book-keeping
It involves maintaining complete record of all costs incurred from
their incurrence to their charge to departments, products and services.
Such recording is preferably done on the basis of double entry system.
8. • Cost System
Proper accounting for costs requires systems and procedures.
• Cost Ascertainment
Cost ascertainment forms the basis of managerial decision making for
planning and control.
• Cost Analysis
It involves the process of finding out the causal factors of actual costs
varying from the budgeted costs and fixation of responsibility for cost
increases.
9. • Cost Comparisons
Cost accounting also includes comparisons between cost from
alternative courses of action over a period of time.
• Cost Control
Cost accounting is the utilization of cost information for exercising
control. It involves a detailed examination of each cost in the light of
benefit derived from the incurrence of the cost.
10. • Cost Reports
The ultimate function of cost accounting is the presentation of
reports. These reports are primarily for use by the management at
different levels. Cost reports form the basis for planning and control,
performance appraisal and managerial decision making.
11. Importance of Cost Accounting
1. To Management
• Helps in ascertainment of cost of process, product, activity, by using different
techniques such as job costing and process costing..
• Aids in price fixation by using demand and supply, activities of competitors,
market condition to a great extent, also determine the price of product and cost to
the producer does play an important role. The producer can take necessary help
from costing records.
12. • Helps in cost reduction by applying cost reduction pro gramme and
improved methods are tried to reduce costs.
• Elimination of wastage by checking the forms of waste, such as time
and expenses etc.
• Helps in identifying unprofitable activities so that the necessary
corrective action may be taken.
• Helps in checking the accuracy of financial account
• Helps in fixing selling prices.
• Helps in Inventory Control.
• Helps in estimate.
13. 2. To Employees
Employees have an interest in which they are employed. An efficient
costing system benefits employees through incentives plan in their
enterprise.
14. FINANCIAL ACCOUNTING COST ACCOUNTING
Provides information about financial performance and financial
matters
Provides information of ascertainment of cost to control cost
and for decision making
Classifies, analyses and records transactions in terms of money Classify records, present, and interpret in a significant manner
the material, labour and overhead costs
Records historical data Records estimated/budgeted data.
Make use of both historical cost & pre determined cost
Shareholders, financial analysts, govt and its agencies Used by internal management at different levels
Shows the profit/loss of the organization Provides details of cost and profit of each product/service etc
Usually prepared for a year Reports and statements are prepared as and when required
Set format to present financial information No set format to present cost information
15. ADVANTAGE OF COST ACCOUNTING
• Benefits to the Management
• Benefits to the Employees
• Benefits to Creditors
• Benefits to the Government
• Benefits to Consumers/Public
16. Limitations of Cost Accounting
It is expensive
The system is more complex
Inapplicability of same costing method and technique
Not suitable for small scale units
Lack of accuracy
It lacks social accounting
