Fundamentals of Cost Accounting

Objectives of Cost Accounting

Cost Accounting refers to the classifying, recording and appropriate allocation of expenditure for the purpose of determining the costs of products or services. It also helps in the presentation of arranged data for the control purposes and guidance to the management. Cost accounting deals with the production, selling and distribution costs. It involves the ascertainment of the cost of every job, order, product, process or service. Here, we shall discuss the various Objectives of Cost Accounting.

Objectives of Cost Accounting

The objective of the cost accounting is to determine the methods by which expenditure on materials, wages and overhead are recorded, classified and allocated. This is necessary so that the

cost of products and services may be accurately ascertained. Thus, the following are the main objectives of cost accounting:

  1. Ascertainment of the cost per unit of the different products that a business concern manufacturers.
  2. To correctly analyze the cost of both the process and operations.
  3. Disclosure of sources for wastage of material, time, expenses or in the use of the equipment and the preparation of reports which may be necessary to control such wastage.
  4. Provide requisite data and help in fixing the price of products manufactured or services rendered.
  5. Determination of the profitability of each of the products and help management in the maximization of these profits.
  6. Exercise effective control of stocks of raw material, work-in-progress, consumable stores, and finished goods so as to minimize the capital invested in them.
  7. Present and interpret data for management planning, decision-making, and control.
  8. Help in the preparation of budgets and implementation of budgetary control.
  9. Aid management in the formulation and implementation of incentive bonus plans on the basis of productivity and cost savings.
  10. Organization of cost reduction programmes with the help of different departmental managers.
  11. To provide specialized services for cost audit in order to prevent errors and frauds.
  12. To facilitate prompt and reliable information to management.
  13. Determination of costing profit or loss by linking the revenues to costs of those products or services by selling which the revenues have arisen.

Objectives of Cost Accounting

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Example of Objectives of Cost Accounting

Q. Explain the scope or functions of cost accountancy?

Ans.

The scope or functions of cost accountancy are:

  1. Cost Ascertainment

Cost Accountancy collects and analyses the expenses, measures the production of products at different stages of manufacture and the links up of production with the expenses. It thus calculates or ascertains the Historical or Actual costs, estimated costs, standard costs, etc.

It also uses the different techniques of costing such as marginal cost technique, the total cost technique, direct cost technique, etc. to link the production with expenses.

  1. Cost Accounting

Cost Accountancy is the process of accounting for cost. It begins with the recording of expenditure and ends with the preparation of statistical data. Cost Accounting is a formal mechanism of ascertaining and controlling the costs of products or services.

It is thus helpful to the management in decision making which also requires the costing information. However, if a firm keeps cost and financial accounts separately then their reconciliation is also necessary so as to verify the accuracy of both sets of accounts.

  1. Cost control

Cost control refers to the regulation of the costs of operating an undertaking. It involves guiding the actual costs towards the line of targets and regulating the actual in case they deviate or vary from the targets.

Cost control is done by executive action. The organization can control costs by means of standard costing, budgetary control, proper presentation and reporting of cost data and cost audit.

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