What is COST ACCOUNTING and Its Functions
COST ACCOUNTING
“The amount of expenditure incurred on or attributable to a given thing”
“Cost is the systematic procedure of determining the unit cost of product/ service.”
“The process of accounting for cost from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centers and cost units. It embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned.”
OBJECTIVES & FUNCTIONS OF COST ACCOUNTING
1. Analysis and ascertainment of costs.
2. Presentation of costs for cost reduction & cost control
3. Planning & decision making
IMPORTANCE / ADVANTAGES Of Cost Accounting
1. Cost Accounting as an aid to management:
• Provides reliable cost data in regard to material, labour, overhead and other expenses
• Helps in price fixation
• Provides information on which estimates & tenders are based
• It helps in channelising production on eight lines.
• Guides future production policies & in planning
• Helps in determining profitable & non-profitable activities.
• Increase efficiency & reduces wasting of costs.
• Helps management in periods of trade depression & competition by determining actual cost of product.
• Provides cost data for comparison in different periods
• Costing aids in inventory control
• Useful tool for managerial control & helps in cost reduction & cost control.
2. Advantages to Employees – introduction of incentive wage system & bonus plans.
3. Advantage to creditors/ Investors / Bankers.
4. Advantage to Govt. & society.
LIMITATION OF COST ACCOUNTING
1. It is not independent system of accounts
2. It is based largely on estimates like absorption of indirect expenses or apportionment of expenses on estimate basis
3. There is scope of subjectivity on items like depreciation, valuation of closing stock etc.
4. It does not take into consideration all items of expenses and incomes e.g. items purely financial nature such as interest, finance charges, discount and loss of shares and debentures etc.
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