Question

Define cost accounting. Discuss the role of cost accounting in an organisation?

Answer 1

Cost is an expense incurred by a particular unit. In another way, the cost is what the business sacrifices in order to produce one unit of product.

What is “accounting”?

Accounting is the art and science of recording, classifying, summarizing, and analyzing inputs to make a sense of the information related to financial, management, or cost.

Cost Accounting Definition

Cost Accounting Definition – Cost accounting is the art and science of recording, classifying, summarizing, and analyzing costs to help management make prudent business decisions.

role of cost accounting

 Aids Profit Analysis

Cost accounting analyzes each and every cost incurred in a business. This helps the entrepreneur to decide which costs are actually contributing to the profit-making aspect and which are not. Cost accounting also helps in realizing whether a business is able to earn more than its total cost incurred. If not, then it is time to restructure your business strategies.

Helps Formulate Future Strategies.

In every business, preplanning your business strategy is crucial. Without a proper idea of the financial state of the organization, the business strategy is incomplete. When you are aware of the costs, you know where the profit margin is lacking. It becomes easier to eliminate the extra cost being incurred and make a better business finance strategy. Also, cost accounting helps you to keep an eye on the increasing costs. If the cost of raw materials is increasing annually, then it allows companies to decide a future course of action to reduce or control the increasing costs. For this purpose, a firm may consider approaching other vendors or decide to manufacture the raw materials themselves. Accordingly, the management can decide on future strategies for the company.

Makes Budgeting Easy

Cost accounting makes budgeting simple. No business can run without a set budget in mind. Budgeting is a process which a smart entrepreneur follows annually. Cost accounting statements of previous years help you to forecast the future business expenses. If the costs are rising for previous years, you can make a proper estimate of the increase in the cost for the current year. Accordingly, a firm can decide whether they need to increase the margin or not and plus, make the necessary arrangement of funds to cater to the increasing prices. Therefore, cost accounting helps to plan your budget better.

Helps Identify the Break-Even Point

The number of units required to produce and sell in order to cover your total costs is known as the break-even point. The process conducted to identify the break-even point is known as the breakeven analysis. Cost accounting will help you identify the total costs associated with your business operations. This will include both the fixed as well as the variable costs. Only when you keep a record of all your costs, you are able to calculate and ascertain your break-even point.

Answer 2

Answer:

Definition Of Cost Accounting :-

Cost Accounting is defined as :- " a process of accounting for costs from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centres and cost units ."

Role Of Cost Accounting In An Organisation Are :-

• Determination And Analysis Of Cost - The main role of cost accounting is to find out the total cost and unit cost of manufactured goods and services, contracts, processes etc. and to classify and analyse costs in such a manner as to enable a comparative study of costs.

• Cost Control - Another function of cost accounts is to control costs. The data made available through cost accounting helps in minimising cost and also helps the firm to achieve maximum production at the least possible cost.

• Matching Of Cost And Revenue - In order to find out profit or loss through cost accounting cost accounts maintain the record of selling cost and revenue earned in a systematic manner whenever the management has to take crucial divisions like sale of product plant installation closure of departments etc.

• Provides Information For Management Decisions - Cost Accounting generates vital cost information which helps decision making and formulation of business policy.

• Price Fixation And Future Policy Determination - Which commodity or product be produced more or whose production be reduced, which of the new products be brought into the market, in which of the areas be the advertising taken more vigorously, etc. are such matters in which by determining the costs and profits, the decisions could easily be taken.

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