Cost Accounting

Accounting – Meaning And Objectives Of Cost Accounting

Meaning Of Accounting – Accounting is that system under which the transactions and events of business are recorded in monetary terms. Under it, accounting terms and concepts are used to describe the events that make up the existence of business. It records the business transactions taken place during the accounting period. At the end of the period, it shows the result of the transactions in the form of final accounts consisting of profit and loss account and balance sheet. For preparing these accounting includes identifying, recording, classifying, summarising and interpreting the results of the business transactions, so that, accurate decisions may be taken regarding business. Accounting is a means of communicating business information relevant to the objectives of the decision makers both internal and external.

Objectives Of Cost Accounting

(1) Cost Ascertainment – The primary objective of cost accounting is to ascertain the cost of a product or job or operation. For ascertaining the cost of a product, the expenses are collected, classified and analysed. In addition to direct expenses relating to a product, joint expenses belonging to several products are also taken into account, so that, real cost of a product may be ascertained.

(2) Control over Cost – Cost accounting helps in improving the efficiency of an organisation as a whole. By controlling the wastage of material, labour and other expenses, cost can be controlled. Management applies various tools for this such as budgetary control, standard costing, responsibility accounting etc. Globalisation and competition have made cost control a tool for checking managerial performance and efficiency.

(3) Fixation of Selling Price – Cost accounting provides the detailed information about the composition of total cost for the determination of the selling price. It also provides information to decide the extent to whiclh prices can be reduced to meet the differentiating the cost as variable and fixed cost. Various factors like cost production, competition, market situation, business cycle, change in fashion, etc. are very important while fixing the price of a product.

(4) Determination of Profitability – Profitability means the capacity to earn profit which can be determined by matching the cost with revenue. Cost accounting provides the data, on the basis of which, actual profits and expected profits are calculated. Difference between the two is analysed and efforts are made to have the maximum profits by using full capacity.

(5) Providing Information – Cost accounting provides important information for the cost audit programme. This information helps in the prevention of frauds, misrepresentations and errors. In such a situation, management gets reliable information of cost.

(6) Aid to Management – Cost accounting helps the management in formulation of business policies and decision making. Different techniques of cost accounting like gross profit analysis, cost-volume-profit relationship, break-even point of sales, differential costing method etc. help the management in profit planning and cost control.

(7) Determination of Tender Price – Another important objective of cost accounting is to determine the tender price. On the basis of estimated expenses, the estimated cost of a product or service is determined and certain percentage of profit is added to ascertain the tender price.

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Sarvesh Arora

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