Objectives

1. Definition and Meaning of Cost Accounting

2. Meaning of Cost

3. Objectives of Cost Accounting

4. Cost Terminology

5. Advantages of Cost Accounting

6. Limitations of Cost Accounting

COST ACCOUNTING - MEANING

Cost accounting is concerned with recording, classifying and summarizing costs for determination of costs of products or services, planning, controlling and reducing such costs and furnishing of information to management for decision making.

Definition

COST ACCOUNTING: The Institute of Cost and Management Accountant,

England (ICMA) has defined Cost Accounting as – “the process of

accounting for the costs from the point at which expenditure incurred, to

the establishment of its ultimate relationship with cost centers and cost

units. In its widest sense, 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”.

Cost Accounting = Costing + Cost Reporting + Cost Control.

Accounting for determination and control of costs.

COST – MEANINGCost means the amount of expenditure (actual or notional) incurred on, or attributable to, a given thing.

OBJECTIVES OF COST ACCOUNTING

Ascertainment of costs

Estimation of costs

Cost control

Cost reduction

Determining selling price

Facilitating preparation of financial and other

statement

COST TERMINOLOGY: COST: Cost means the amount of expenditure incurred on a particular

thing.

COSTING: Costing means the process of ascertainment of costs.

COST ACCOUNTING: The application of cost control methods and the

ascertainment of the profitability of activities carried out or planned”.

COST CONTROL: Cost control means the control of costs by management.

Following are the aspects or stages of cost control.

JOB COSTING: It helps in finding out the cost of production of every order

and thus helps in ascertaining profit or loss made out on its execution. The

management can judge the profitability of each job and decide its future

courses of action.

BATCH COSTING: Batch costing production is done in batches and each

batch consists of a number of units, the determination of optimum quantity to

constitute an economical batch is all the more important.

Advantages

• Classification and Subdivision of Costs• Adequacy or Inadequacy of Selling Prices• Disclosure of profitable Products• Control of Material and Supplies• Maintenance of Proper Investment in Inventories• Correct Valuation of Inventories• Control of Labour Cost• Budgeting• Controllable and Uncontrollable Cost• Reliable Check on General Accounting

Disadvantages

• Based on estimates• Lack of uniformity• Many conventions• Expensive• Result requires reconciliation• Dependent• Does not include all items of expense and

income• Not an exact science

Home Assignment

1. What is Cost Accounting? How it is different from

Management Accounting?

2. Explain the various types of Cost?