AFM Assignment 2 - By “The Avengers “

Topic: Cost Accounting

Submitted To: Mr. Gurdeepak Singh

Submitted By: The Avengers

Cost Accounting

Introduction

Cost accounting is the process of determining and accumulating the cost of product or activity. It is a process of accounting for the incurrence and the control of cost. It also covers classification, analysis, and interpretation of cost. In other words, it is a system of accounting, which provides the information about the ascertainment, and control of costs of products, or services. It measures the operating efficiency of the enterprise. It is an internal aspect of the organization. Cost Accounting is accounting for cost aimed at providing cost data, statement and reports for the purpose of managerial decision making.

Discussion

Scope of Cost Accounting

1. 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.

2. Cost system: Systems and procedures are devised for proper accounting for costs.

3. Cost ascertainment: Ascertaining cost of products, processes, jobs, services, etc., is the important function of cost accounting. Cost ascertainment becomes the basis of managerial decision making such as pricing, planning and control.

4. 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.

5. Cost comparisons: Cost accounting also includes comparisons between cost from alternative courses of action such as use of technology for production, cost of making different products and activities, and cost of same product/ service over a period of time.

Objectives of Cost Accounting

1. Determining selling price: The objective of determining the cost of products is of main importance in cost accounting. The total product cost and cost per unit of product are important in deciding selling price of product.

2. Controlling cost: Cost accounting helps in attaining aim of controlling cost by using various techniques such as Budgetary Control, Standard costing, and inventory control.

3. Providing information for decision-making: Cost accounting helps the management in providing information for managerial decisions for formulating operative policies.

4. Ascertaining costing profit: Cost accounting helps in ascertaining the costing profit or loss of any activity on an objective basis by matching cost with the revenue of the activity.

5. Facilitating preparation of financial and other statements: Cost accounting helps to produce statements at short intervals as the management may require. The financial statements are prepared generally once a year or half year to meet the needs of the management.

Importance of Cost accounting

1. Importance to Management

- Helps in ascertainment of cost.

- Aids in Price Fixation

- Helps in Cost reduction

- Helps in identifying unprofitable activities

- Helps in fixing selling Prices

2. Importance to Employees

3. Cost accounting and creditors

4. Importance to National Economy

5. Data Base for operating policy

Limitations of Cost Accounting

1. It is expensive because analysis, allocation and absorption of overheads require considerable amount of additional work.

2. The results shown by cost accounts differ from those shown by financial accounts.Preparation of reconciliation statements frequently is necessary to verify their accuracy.This leads to unnecessary increase in workload.

3. It is unnecessary because it involves duplication of work. Some industrial units are functioning efficiently without any costing system.

4. Costing system itself does not control costs. If the management is alert and efficient, it can control cost without the help of the cost accounting.

Therefore it is unnecessary.

Conclusion

At the end the cost accounting provides base for management accounting and helpful in collecting data. The cost accounting systems can be important sources of information for the managers of a company. For this reason, the managers understand the forces and weaknesses of the cost accounting system and participate in the evaluation and evolution of the cost measurement and administration systems. Unlike the accounting systems that help in the preparation of financial reports periodically, the cost accounting systems and reports are not subject to rules and standards like the Generally Accepted Accounting Principles. As a result, there is a wide variety in the cost accounting systems of the different companies and sometimes even in different.

Contributors

160 – Roshni Rai (C)

96 – Pamita Devi (B)

4.C