Cost Accounting: Meaning, Objectives, Functions, Scope and Advantages

Cost Accouting:

Cost accouting is concerned with recording, classifying and appropriate allocation of expenditure for the determination of the costs of products or services and for the suitably arranged data for purposes of control and guidance of information to management for decision making.

Cost means "the price paid for something".

Three Major Elements of Cost:

1. The value of material

2. The amount of labour

3. Otherexpenses incurred 

Objectives and Functions of Cost Accouting:

1. To ascertain the cost per unit of the different products manufactured by a business concern.

2. To provide a correct analysis of cost both by process or operations and by different elements of cost.

3. 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.

4. To provide requisite data and serve as a guide for fixing prices of products manufactured or services rendered.

5. To ascertain the profitability of each of the products and advise management as to how these profits can be maximised.

6. To exercise effective control if stocks of raw materials, work-in-progress, consumable stores and finished goods in order to minimise the capital locked up in these stocks.

7. To reveal sources of economy by installing and implementing a system of cost control for materials, labour and overheads.

8. To advise management on future expansion policies and proposed capital projects.

9. To present and interpret data for management planning, evaluation of performance and control.

10. To help in the preparation of budgets and implementation of budgetary control.

11. To organise an effective information system so that different levels of management may get the required information at the right time in right form for carrying out their individual responsibilities in an efficient manner.

12. To guide management in the formulation and implementation of incentive bonus plans based on productivity and cost savings.

13. To supply useful data to management for taking various financial decisions such as introduction of new products, replacement of labour by machine etc.

14. To help in supervising the working of punched card accounting or data processing through computers.

15. To organise the internal audit system to ensure effective working of different departments.

Scope of Cost Accouting:

There are lot of techniques, procedures, process and programmes are used in cost accouting for calculating cost and itscontrol.

But basically, we divide its scope within three major parts:

1. Cost ascertainment 

2. Cost record 

3. Cost control

Advantages of Cost Accouting:

Cost accounting has so many advantages but the followings are the main advantages given:

1. Helps in controlling cost: Cost accounting helps to control the cost of the business by applying different type of techniques and methods such as standard costing and budgetary control etc.

2. Helps in fixing prices: Cost accounting also helps to fix the prices of product or service.  It provides detailed cost data of each product in aggregate as well as in per unit, which helps in fixation of selling price. Cost accounting provides basis information for the preparation of tenders, estimates and quotations.

3. Provides cost information: It provides necessary cost information to the management for planning, implements and controlling.

4. 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.

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.