03 December 2014
Cost accounting may be regarded as ``a specialised branch of accounting which involves classification,accumulation, assignment and control of costs.
The main objects of cost accounting are the following: (1) To analyse and classify all Expenditures with reference to the cost of products and operations. (2) To arrive at the cost of production of every unit, job, operation, process, department or service and to develop cost standard. (3) To indicate to the management any inefficiencies and the extent of various forms of waste, whether of materials, time, expenses or in the use of machinery, equipment and tools. Analysis of the causes of unsatisfactory results may indicate remedial measures. (4) To provide data for periodical profit and loss accounts and balance sheets at such intervals, e.g., weekly, monthly or quarterly, as may be desired by the management during the financial year, not only for the whole business but also by departments or individual products. Also, to explain in detail the exact reasons for profit or loss revealed in total, in the profit and loss account. (5) To reveal sources of economies in production having regard to methods, types of equipment, design, output and layout. Daily, weekly, monthly or quarterly information may be necessary to ensure prompt and constructive action. (6) To provide actual figures of cost for comparison with estimates and to serve as a guide for future estimates or quotations and to assist the management in their price-fixing policy. (7) To show, where standard costs are prepared, what the cost of production ought to be and with which the actual costs which are eventually recorded may be compared. (8) To present comparative cost data for different periods and various volumes of output. (9) To provide a perpetual inventory of stores and other materials so that interim profit and loss account and balance sheet can be prepared without stock taking and checks on stores and adjustments are made at frequent intervals. Also to provide the basis for production planning and for avoiding unnecessary wastages or losses of materials and stores. (10) To provide information to enable management to make short-term decisions of various types, such as quotation of price to special customers or during a slump, make or buy decision, assigning priorities to various products, etc
03 December 2014
Some of the methods are mentioned below:
Unit costing Job costing Contract costing Batch costing Operating costing Process costing Multiple costing Uniform costing
Cost Accounting has certain limitations. Important among them are as follows:
a)Based on estimates: Indirect costs are not charged fully to a product or process. It is charged to all the products and processes on the basis of estimates. Actual cost varies from estimated cost. Due to these limitations, all cost accounting results are taken as mere estimates.
b)Lack of uniformity: Procedures of cost accounting followed by different organisations are different for different products. There is no uniformity. There is also possibility of difference in pricing material issues for production. All these lead to different cost results for the same operation.
c)Many conventions: There are many conventions for classification of costs, pricing of material issues, apportionment of indirect costs, adoption of marginal or standard cost, etc. These create difficulty in determining the exact cost, because no one type of cost is suitable for all. Purposes and in all circumstances.
d)Expensive: Cost accounting is expensive. It involves lots of clerical won for maintaining various costing records for different purposes. For medium and small size concern, the benefit derived from costing system may not justify the cost involved.
e)Result requires reconciliation: Information and results provided b; financial accounting and cost accounting may be different for the as activity. This requires reconciliation to find out correctness of the two before taking any decision.
f)Dependent: It is not an independent system of accounting. It defends on other accounting systems.
g)Does not include all items of expense and income: Items of purely financial nature such as interest, financial charges, discount and loss on issue of shares and debentures, etc. are not taken into consideration in Cost Accounting.
h)Not an exact science: Like other accounting system, it is not an exact] science but an art that has developed through theories and practices.
CAclubindia
