What is cost accounting explain its objectives and advantages in heading?
Answers
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Following are the main objectives of cost accounting:
Per Cost Unit
To ascertain the cost per unit of the different products manufactured by a business concern
Correct Analysis
To provide a correct analysis of cost both by process or operations and by different elements of cost
Wastage
To disclose sources of wastage whether of material, time or expense or in the use of machinery, equipment and tools and to prepare such reports which may be necessary to control such wastage
Requisite Data
To provide requisite data and serve as a guide for fixing prices of products manufactured or services rendered;
Profitability
To ascertain the profitability of each of the products and advise management as to how these profits can be maximized.
Future Expansion
To advise management on future expansion policies and proposed capital projects.
Planning
To present and interpret data for management planning, evaluation of performance and control.
Preparation of budgets
To help in the preparation of budgets and implementation of budgetary control.
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Answer:
Cost accounting is a branch of accounting that has evolved to overcome the limitations of financial accounting. It is the process of accounting for cost, which is concerned more with the ascertainment, allocation, distribution and accounting aspects of cost. It is that branch of accounting, which deals with the classification, recording, allocation, summation and reporting of current and prospective costs. Actually, it is the formal mechanism by means of which of products and services are ascertained and controlled.
It is an internal reporting systems that aims to assist the management for planning and decision-making it primary emphasizes on cost and deals with collection, analysis, interpretation and prospective for managerial decision making on various business problems.
Objective of Cost Accounting :
The main objective and function of cost accounting are mentioned below:
1. To ascertain cost: the main objective of cost accounting is to ascertain the cost of goods and services. The expenses that are incurred while producing goods or rendering services are called costs. Some examples of costs are material, labor and other direct and indirect expenses. Under cost accounting, cost are collected, classified and analyzed with the aim of finding out the total as well as per unit cost of goods, services, processes, contract etc.
2. To analyses cost and loss: another objective of cost accounting is to analyze the cost of each activity. The analysis of cost is necessary to classify the cost into controllable or uncontrollable, relevant or irreverent, profitable or unprofitable etc. similarly, under cost accounting the effects of material, idle time, breakdown or damage of machine on the cost is also analyzed.
3. To control cost: cost control is a technique that is used to minimize the cost of product and services without compromising on the quality. Cost accounting aims at controlling the cost by using various techniques, such as standard costing and budgetary control.
4. To help in fixation of selling price: another important objective of cost accounting is to help in fixation of selling prices. The costs are accumulated, classified and analyzed to ascertain cost per unit. The selling price per unit is calculated by adding a certain profit on the cost per units. Under cost accounting, different techniques such as job costing, batch costing, output costing services costing etc are used for determine the selling price.
5. To aid the management: cost accounting aims at assisting the management in planning and its importations by providing necessary costing information that also enable the evaluation of the past activities as well as future planning.
Advantages of Cost Accounting :
The advance of cost accounting are presented below:
1. Helps in controlling cost: cost accounting helps in controlling cost by applying some techniques such as standard costing and budgetary control.
2. Provides necessary cost information: it provides necessary cost information to the management for planning, implements and controlling.
3. Ascertains the total per unit cost of production: it ascertains the total and per unit cost of production of goods and services that helps to fix the selling prices as well.
4. Introduces cost reduction programs: it helps to introduce and implement different cost reduction programs.
5. Discloses the profitable and non profitable activities: it discloses the profitable and non profitable activities that enable management to decide to eliminate or control unprofitable activities and expand or develop the profitable activities.
6. Provides information for the comparison of cost: it provides reliable data and information which enable the comparison of cost between periods, volume of output, determent and processes.
7. Checks the accuracy of financial accounts: it helps checking the accuracy of financial accounts. This is done by preparing cost reconciliation statement.
8. Helps invests and financial institutions: it is also advantageous to investment and financial institutions since it discloses the profitability and financial position in which they intend to invest.
9. Beneficial to workers: it is beneficial to workers as well since it emphasizes the efficient utilization of labor and scientific systems of wages payment.