Cost accounting involves the classification, recording, and analysis of costs to determine product or service costs and support managerial decision-making. It serves various objectives such as cost ascertainment, efficiency control, and valuation of inventory, while distinguishing between direct and indirect costs, fixed and variable costs, and different functions. The advantages include waste elimination and cost reduction, whereas disadvantages encompass complexity and potential inaccuracies in cost methodology.

1. COST ACCOUNTING

2. Meaning of Cost Accounting:-
Accounting for costs classification and analysis of expenditure as
will enable the total cost of any particular unit of production to
be ascertained with reasonable degree of accuracy and at the
same time to disclose exactly how such total cost is
constituted.
Thus Cost Accounting is classifying, recording an appropriate
allocation of expenditure for the determination of the costs of
products or services, and for the presentation of suitably
arranged data for the purpose of control and guidance of
management.
Cost Accountancy is defined as ‘the application of Costing and
Cost Accounting principles, methods and techniques to the
science, art and practice of cost control and the ascertainment
of profitability’. It includes the presentation of information
derived there from for the purposes of managerial decision
making. Thus, Cost Accountancy is the science, art and
practice of a Cost Accountant.

3. Objectives of Cost Accounting
To ascertain the Costs under different situations using different
techniques and systems of costing.
To determine the selling prices under different circumstances .
To determine and control efficiency by setting standards for
Materials, Labor and Overheads.
To determine the value of closing inventory for preparing financial
statements of the concern.
To provide a basis for operating policies which may be
determination of Cost Volume relationship, whether to close or
operate at a loss, whether to manufacture or buy from market,
whether to continue the existing method of production or to
replace it by a more improved method of production....etc.

4. Scope of Cost Accountancy :-
Cost Ascertainment
Cost Accounting
Cost Control
Cost Reports
Cost Reports

5. CLASSIFICATION OF COST:-
Nature of expense
Relation to Object – Traceability
Functions / Activities
Production Process

6. 1. Classification by Nature of Expense:-
Costs should be gathered together in their
natural grouping such as Material, Labor and Other Direct
expenses. Items of costs differ on the basis of their nature. The
elements of cost can be classified in the following three
categories.
Material Cost: Material cost is the cost of material of any nature
used for the purpose of production of a product or a service. It
includes cost of materials, freight inwards, taxes & duties,
insurance etc .
Labour Cost: Labour cost means the payment made to the
employees, permanent or temporary for their services. Labour
cost includes salaries and wages paid to permanent &
temporary employees and also to the employees of the
contractor.
Expenses: Expenses are other than material cost or labour cost
which are involved in an activity.

7. 2. Classification by Relation to Cost Centre :-
If expenditure can be allocated to a cost object in
an economically feasible way then it is called direct otherwise the
cost component will be termed as indirect.
Direct
• Direct Material Cost
• Direct Material Cost
• Direct Material Cost
In-Direct Cost
• Indirect Material Cost
• Indirect Labour Cost
• Indirect expenses Cost

8. 3. Classification by Functions:-
Production or Manufacturing Costs
Administration Costs
Selling & Distribution cost
Research & Development costs

9. 4. Classification based on Behaviour:-
Fixed Cost: Fixed cost is the cost which does not vary with the
change in the volume of activity in the short run. These costs
are not affected by temporary fluctuation in activity of an
enterprise. These are also known as period costs. Example:
Rent, Depreciation etc.
Variable Cost: Variable cost is the cost of elements which tends to
directly vary with the volume of activity. Variable cost has two
parts (i) Variable direct cost (ii) Variable indirect costs. Variable
indirect costs are termed as variable overheads. Example:
Direct labour, Outward Freight etc.
Semi-Variable Costs: Semi variable costs contain both fixed and
variable elements. They are partly affected by fluctuation in the
level of activity. These are partly fixed and partly variable costs
and vice versa. Example: Factory supervision, Maintenance etc.

10. 5.Classification by nature of Production:-
Batch Costing
Process Costing
Operation Cost
Contract Costing
Joint Costs

11. Advantage of Cost Accounting
• Elimination of Wastes, Losses and Inefficiencies
• Cost Reduction
• Identify the reasons for Profit or Loss
• Price Fixation
Disadvantage of Cost Accounting
• The system is more complex
• Not suitable for small scale units
• Lack of Accuracy
• Inapplicability of costing method and technique

12. Financial Accounting Cost Accounting
1. It provides the information about
the business in a general way. i.e
Profit and Loss Account, Balance
Sheet of the business to owners
and other outside partners.
1. It provides information to the
management for proper planning,
operation, control and decision
making.
2. It classifies, records and analyses
the transactions in a subjective
manner, i.e according to the nature of
expense.
2. It records the expenditure in an
objective manner, i.e according to
the purpose for which the costs are
incurred.
3. It lays emphasis on recording
aspect without attaching any
importance to control.
3. It provides a detailed system of
control for materials, labour and
overhead costs with the help of
standard costing and budgetary
control.
4. It reports operating results and
financial position usually at the
end of the year.
4. It gives information through cost
reports to management as and when
desired.
CONT……

13. Financial Accounting Cost Accounting
5. Financial Accounts are accounts of
the whole business. They are
independent in nature.
5. Cost Accounting is only a part of the
financial accounts and discloses profit
or loss of each product, job or service.
6.Financial Accounts records all the
commercial transactions of the
business and include all expenses i.e
Manufacturing, Office, Selling etc.
6.Cost Accounting relates to
transactions connected with
Manufacturing of goods and services,
means expenses which enter into
production.
7.Financial Accounts are concerned
with external transactions i.e.
transactions between business
concern and third party.
7.Cost Accounts are concerned with
internal transactions, which do not
involve any cash payment or receipt