According to Wheldon, “Cost accounting is the application of accounting and costing principles, methods and techniques in the ascertainment of costs and the analysis of saving/or excess cost incurred as compared with previous experience or with standards”. Necessity of cost accounting is felt more if overheads form a significant portion of total cost as we will see in t he course of our discussion in the book. Cost accounting is distinct and separate from general financial accounting, which is regulated by generally accepted accounting principles (GAAP) and is critical for creating financial statements. Prohibited Content 3. Past costs (which could not be recovered in past) should not be recovered from future costs as it will not only affect the true results of future period but will also distort other statements. 2. A company that produces cars might have the steel involved in production as a variable cost. A direct cost is a price that can be completely attributed to the production of specific goods or services. Here we detail about the meaning, objectives, principles, objections against and evolution and development of cost accounting. Cost accounting can be used to identify inefficiencies and apply the necessary improvements needed to control costs. Until the late 19th and early 20th centuries, manufacturing processes were simple and firms were producing a small variety of products. For example unit cost should not be charged with selling cost while it is still in factory.

Further, provision of cost audit under section 233 B of the Companies Act has given impetus to the development of cost accounting in India. In spite of this, there was slow development of cost accounting during the 19th century. It is argued that the adoption of costing system failed to produce the desired results in many cases and, therefore, the system is defective. The system of costing should be so devised as to suit the business but not the business to suit the system.

Evolution and Development of Cost Accounting. (3) Providing useful data to management for taking decisions. Indirect costs can't be directly tied to the production of a product and might include the electricity for a factory. For example, a parent company overseas might be the supplier for its U.S. subsidiary, meaning the U.S. company would be charged by the parent for any purchases of materials. TOS 7. To ascertain cost: The basic objective of cost accounting is to ascertain cost of cost center. Basis for fixing selling prices : As the prices of the cost object, i.e.
To advise management on future expansion policies and proposed capital projects; 9. Otherwise, it would be difficult to calculate how much to charge for a sandwich. The aim is to know the methods by which expenditure on materials, wages and overheads is recorded, classified and allocated so that the cost of products and services may be accurately ascertained; these costs may be related to sales and profitability may be determined. It establishes budgets and standards so that actual cost may be compared to find out deviations or variances. cost of products and services may be accurately ascertained. Meaning: Cost accounting is the classifying, recording and appropriate allocation of expenditure for the determination of the costs of products or services, and for the presentation of suitably arranged data for purposes of control and guidance of management. Even though cost accounting is commonly referred to as a costing method, the scope of cost accounting is far broader than mere cost. Most of the literature until this time emphasized the procedures for the calculation of prime costs only.”.

A tendency among the cost accountants to keep their costing methods strictly secret was also responsible for slow development of cost accounting. Forms and rulings are essential for a costing system but they must be revised and brought up-to-date in the light of altered conditions. To provide requisite data and serve as a guide for fixing prices of products manufactured or services rendered; 5. Cost accounting aims to report, analyze, and lead to the improvement of internal cost controls and efficiency.

Cost Accounting is a business practice in which we record, examine, summarize, and study the company’s cost spent on any process, service, product or anything else in the organization. The failure of a system may be due to several causes such as apathy or indifference of management, lack of adequate facilities, non-co-operation or opposition from the employees. Financial accounting and cost accounting systems can be differentiated based on their respective target audiences. Disclaimer 9. Cost accounting is also used to help with cost controls. To organise the internal audit system to ensure effective working of different departments; 16. . To exercise effective control if stocks of raw materials, work-in-progress, consumable stores and finished goods in order to minimise the capital locked up in these stocks; 7. It is argued that modern methods of costing are inapplicable to many types of industries.
Objectives of Cost Accounting . To guide management in the formulation and implementation of incentive bonus plans based on productivity and cost savings; 13. Often, the simplest and most important objective of cost accounting is to determine selling prices. Objectives and functions of cost accounting. Report a Violation, Cost Accounting: Definitions, Objectives, Functions and Objections, Cost Accounting: Advantages and Limitations. It is true that costing cannot be applied with advantage to trading concerns and concerns of small size. These controls can include budgetary controls, standard costing, and inventory management. So it is hasty to find fault with the system, if it fails to produce the desired results. This will ensure the correctness of cost sheets and cost statements which are prepared for cost ascertainment and cost control.

Several reasons for the late development of cost accounting can be attributed as given below: 1. It is argued that after some time, a costing system degenerates into a matter of forms and rulings.

Cloudflare Ray ID: 5db7e3ccbc7bca57 To supply useful data to management for taking various financial decisions such as introduction of new products, replacement of labour by machine etc. For example, raw material costs and inventory prices are shared between both accounting methods. To disclose sources of wastage whether of material, time or expense or in the use of machinery, equipment and tools and to prepare such reports which may be necessary to control such wastage; 4. But in many cases some methods of costing can always be devised to suit the requirements of the business. Cost accounting is the classifying, recording and appropriate allocation of expenditure for the determination of the costs of products or services, and for the presentation of suitably arranged data for purposes of control and guidance of management. Completing the CAPTCHA proves you are a human and gives you temporary access to the web property.

To provide specialised services of cost audit in order to prevent the errors and frauds and to facilitate prompt and reliable information to management; and. Following are the main principles of Cost Accounting: Cause-effect relationship should be established for each item of cost. Cost accounting involves assigning costs to cost objects that can include a company's products, services, and any business activities. A direct cost is a cost that's directly tied to the production of a product and typically includes direct materials, labor, and distribution costs. Unit cost should include only those costs which have been actually incurred. Image Guidelines 5. It may be stated in this connection that a costing system must be a profitable investment and should produce benefits commensurate with the expenditure incurred on the system. This is different than financial accounting, in which GAAP and international financial reporting standards (IFRS) regulate method and presentation. 5.

It deals with the cost of production, selling and distribution. Objectives of Cost Accounting Determination of Cost : To accumulate, allocate and ascertain cost for each cost object is the primary objective of the cost accounting. Thus, cost accounting relates to the collection, classification, ascertainment of cost and its accounting and control relating to the various elements of cost. Cost accounting is the reporting and analysis of a company's cost structure. Copyright 10. If this is not done, the system is bound to degenerate into a mere matter of forms and rulings. The main purpose of cost accounting is analyzing the expenses with a view to knowing of cost of unit of output, of a job, of a process or of an operation. It provides statistical data on the basis of which future estimates are prepared and quotations are submitted. It involves the presentation of right information to the right person at the right time so that it may be helpful to management for planning, evaluation of performance, control and decision making. Objectives of Cost Accounting. The Government may appoint a cost auditor to conduct cost audit where it is necessary: (a) So to do in the opinion of the Government under section 233 B of the Companies Act, 1956; (b) To ascertain correct cost of certain units when Government is approached for protection or financial help; (c) To ascertain correct cost of contract given to private firms under ‘cost plus’ basis; (d) Fix reasonable prices of certain items of production so as to prevent undue profiteering.

The followings are the objectives of cost accounting.

Content Guidelines 2. To reveal sources of economy by installing and implementing a system of cost control for materials, labour and overheads; 8. This helps the organization in cost controlling and making strategic planning and decision on improving cost efficiency.

18. Many industrial failure.’ in the past may be attributed to the lack of knowledge on the part of manufacturer of actual cost of production and, therefore, selling products below cost. It is a process of accounting for costs. The Vivian Bose Enquiry Commission brought to light the various malpractices prevalent in the manufacturing establishments and it was thought that the financial audit for the audit of financial accounts at the end of the year was insufficient to judge the real efficiency of working of manufacturing organisations. It records income and expenditure relating to production of goods and services.