Question

1. “A costing system that simply records costs for the purpose of fixing sale prices has accomplished only a small part of its mission”. In the light of this statement, explain what other functions does costing system perform? Also differentiate between financial accounting and cost accounting

Answer 1

An ideal costing system is a system achieving the goals of a costing system and providing an enterprise all the benefits of costing.

• Other functions of the system include -

1. The cost accounting method should be in a position to implement to the changing market circumstances themselves. Based on the company requirements it must be capable of expansion or contraction.
2. The kept records must facilitate comparison over a period of time. The past documents will serve as a guide for directing the future.
3. The cost accounting method must ensure consistency in terms of both cost ascertainment and cost data presentation. It would otherwise prove to be misleading.
4. The cost of the costing system for the production must be lower. This must lead to an increase in benefit as matched with the deployment expenses.

Difference -

1. Financial accounting shows income for the whole company as a whole, Whereas cost accounting for every product, process or operation indicates the benefit.

2. Financial accounting does not employ control methods, whereas control methods such as budgetary control are used in cost accounting.