Introduction to Cost Accounting

Previously,

cost accounting was merely considered to be a technique for the ascertainment of costs of products or services on the basis of historical data. Cost accounting is, thus, 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.

 It

is process of accounting for costs. It records income and expenditure relating to production of goods and services. It is concerned with cost ascertainment, cost control and cost reduction. It establish budgets and standards. It involve the preparation of right information to the right person at the right time so that it may helpful to management for planning and controlling.

 The
1. 2. 3. 4.

main objectives of cost accounting are as follows:

Determining Selling Price Determining and Controlling Efficiency Facilitating Preparation of Financial and Other Statements Providing Basis for Operating Policy To ascertain the cost per unit of different products. To disclose sources of wastages.

5.

6.

 Profitable

and unprofitable activities are

disclosed. Helpful to measure the efficiency of the concern Provides information which is helpful in making estimates and tenders Guides future production policies Reliable data for comparing costs Helpful to government Helpful to consumers

 Cost

accounting lacks a uniform procedure There are large number of conventions, estimates and flexible factors. Many formalities Contribution of cost accounting for handling futuristic situations has not been much

 Cause

effect relationship Charge of cost only after its incurrence Past costs should not form part of future costs Exclusion of abnormal costs from cost accounts Principles of double entry should be followed preferably

1.
2. 3. 4. 5. 6. 7. 8.

Suitability to business Simplicity Flexibility Economical Efficient system of material control Departmentalization of expenses Reconciliation of cost accounts and financial accounts Duties and responsibilities of cost accountant

 Cost

is the price to be paid or amount of money needed to obtain something. It may be actual or national, incurred or attributable to a given product or services rendered. Costing refers to 'the technique and process of ascertaining costs'. It is the process of classifying, recording and appropriate allocation of expenditure for the determination of cost of product or services rendered.

 The

steps to be taken in installing a costing system are given below: 1. The objectives to be achieved through the costing system 2. Studying the existing organization and routine 3. Deciding the structure of cost accounts 4. Determining the cost rates 5. Introducing the system

6. Organizing the cost office 7. Relationship of cost office to other department 8. Authority and responsibility should be clearing defined

Practical difficulties ,apart from technical costing problems which a cost accountant has to face in installing a costing system are: 1.Lack of support from top management 2. Resistance from existing accounting staff 3. non-cooperation at other levels of organization 4. Shortage of trained staff 5. Heavy cost of operating the system

 To

overcome the discussed difficulties , the following steps are suggested: 1. Support from top management 2. Utility of system to existing staff 3. Workers confidence for cooperation 4. Training to existing accounting staff 5. Proper supervision 6. Cost system according to specific requirement of the concern

1.
2. 3. 4. 5. 6. 7.

Job costing Contract costing Batch costing Process costing One operation costing Service costing operation costing Multiple costing

 Following

are the main types or techniques of costing for ascertaining costs: 1. Marginal costing 2. Uniform costing 3. Standard costing 4. Historical costing 5. Direct costing 6. Absorption costing

 The

Difference Between Cost Accounting and Financial Accounting are as follows:

Financial Accounting 1. The main purpose of financial accounting is to record financial transactions, finding out profit or loss and financial position. 2. Financial accounting presents financial information at the end of the accounting period.

Cost Accounting 1. The main purpose of cost accounting is to analyse, ascertainment and control of cost. 2. Cost accounting presents cost information at frequent intervals.

Cost Accounting 3. Cost accounting generally kept voluntarily to meet the requirements of the management.

Financial Accounting 3. Financial accounting is kept compulsory in such a way as to meet the requirement of the Companies Act and income Tax Act. 4. Financial accounting records transactions in a subjective manner. It means according to the nature of expenses. 5. Monetary information is only used.

4. Cost accounting records transactions in a objective manner. It means the purpose for which the cost in incurred. 5. Non monetary information is also used

6. Cost accounting provides 6. Financial accounts are not information for fixation of selling maintained with the object of prices fixation of selling prices.