NATURE AND SCOPE OF COST
ACCOUNTING
COST ACCOUNTING
COST ACCOUNTING
NEED OF COST ACCOUNTING
1.
COST ACCOUNTING HAS BEEN BASICALLY DEVELOPED TO MEET
THE NEEDS OF MGMT. MODERN MGMT NEEDS MUCH MORE DETAILED INFORMATION BESIDES
PROFIT AND LOSS ACCOUNT AND BALANCE SHEET.
2.
COST ACCOUNTING PROVIDES DETAILED INFORMATION ABOUT
EVERY ELEMENTS OF COST TO THE MANAGEMENT. THE INFORMATION SUPPLIED BY THE COST
ACCOUNTING ACTS AS A MGMT TOOL FOR DECISION MAKING FOR THE ORGANIZATION,OPTIMUM
UTILIZATION OF SCARCE RESOURCES,CONTRIBUTING PROFITABILITY OF BUSINESS BY
CONTROLLING EXPENDITURE UNDER VARIOUS HEADS.
MEANING
COSTING:- TECHNIQUE AND
PROCESS OF ASCERTAINING COSTS.
COST ACCOUNTING IS A
FORMAL SYSTEM FOR COSTS IN THE BOOKS OF ACCOUNT BY MEANS OF WHICH COST OF
PRODUCTS AND SERVICES ARE ASCERTAINED
AND CONTROLLED.
COST ACCOUNTING:- RELATES
TO COLLECTION,CLASSIFICATION,ASCERTAINMENT OF COST AND ITS ACCOUNTING AND
CONTROL TO THE VARIOUS ELEMENTS OF COST. IT ESTABLISHES BUDGETS AND STANDARD
COSTS AND ACTUAL COST OF OPERATION,PROCESSES,DEPARTMENTS OR PRODUCTS AND THE
ANALYSIS OF VARIANCES, PROFITABILITY AND SOCIAL USE OF FUNDS.
DEFINITION
WHELDON “ COST ACCOUNTING
IS THE APPLICATION OF ACCOUNTING AND COSTING PRINCIPLES, METHODS AND TECHNIQUES
IN THE ASCERTAINMENT OF COSTS AND ANALYSIS OF SAVING/OR EXCESS COST INCURRED AS
COMPARED WITH PREVIOUS EXPERIENCE WITH STANDARD.
COST MGMT:- APPROACHES AND
ACTIVITIES OF THE MANAGERS IN THE SHORT TERM AND LONG TERM PLANNING AND CONTROL
DECISIONS THAT INCREASE VALUE FOR CUSTOMERS AND LOWER COSTS OF PRODUCTS AND
SERVICES. IT INCLUDES COST ACCOUNTING,
COST CONTROL, COST REDUCTION AND MGMT ACCOUNTING.
MEANING
COST ACCOUNTANCY: IT IS
THE SCIENCE, ART AND PRACTICE. IT THE APPLICATION OF COSTING AND COST
ACCOUNTING PRINCIPLES, METHODS AND TECHNIQUES TO THE SCIENCE, ART AND PRACTICE
OF COST CONTROL AND ASCERTAINMENT OF PROFITABILITY.
WE CAN SAY COST ACCOUNTING
IS
1.
SCIENCE: IT CONSIST OF SYSTEMATIC KNOWLEDGE
2.
ART:_ REQUIRES THE APPLICATION OF KNOWLEDGE AND SKILL
3.
PRACTICE: CONTINUOUS EFFORTS ON THE PART OF COST
ACCOUNTANTS AND CONTINUOUSLY UPDATION
FEATURES
1.
PROCESS OF ACCOUNTING FOR COSTS
2.
RECORDS INCOME AND EXPENDITURE RELATING TO PRODUCTION
OF GOODS AND SERVICES.
3.
PROVIDES INFORMATION ON COST OF EVERY PRODUCT,JOB WORK
ORDER,PROCESS OR OPERATION OF TH ORGANIZATION
4.
PROVIDES STATISTICAL DATA FOR THE PREPARATION OF
TENDERS AND QUOTATION
5.
CONCERNED WITH COST ASCERTAINMENT, COST PRESENTATION
AND COST CONTROL AND COST REDUCTION
6.
IT ESTABLISHES BUDGETS AND STANDARD SO THAT ACTUAL
COSTS MAY BE COMPARED TO FIND OUT DEVIATIONS AND
7.
PRESENTATION OF RIGHT INFORMATION TO THE RIGHT PERSON
AT THE RIGHT TIME
OBJECTIVE
- ASCERTAINMENT OF COST OF PER UNITS OF DIFFERENT
PRODUCTS MANUFACTURED BY A BUSINESS CONCERN
- CORRECT ANALYSIS OF COST BY PROCESS AND OPERATION
- DISCLOSE SOURCES OF WASTAGE WHETHER OF
MATERIAL/LABOUR/OVERHEAD
- FIXATION OF PRICE: REQUISITE DATA IS PROVIDED FOR
FIXATION OF THE PRICE
- ASCERTAINMENT OF PROFITABILITY OF EACH OF THE
PRODUCT AND ADVISE MGMT AS TO HOW THESE PROFITS CAN BE MAXIMIZED
- EFFECTIVE CONTROL OF STOCKS OF RAW MATERIAL,WORK
IN PROGRESS ,CONSUMABLE STORES ETC
- COST AUDIT AND COST REDUCTION
NATURE OF COST ACCOUNTING
COST ACCOUNTING IS A
SEPARATE DISCIPLINE: EARLIER IT WAS TREATED AS BRANCH OF FINANCIAL ACCOUNTING
BUT NOW AS A SEPARATE DISCIPLINE. IT CONSISTS OF ITS OWN PRINCIPLES,CONCEPTS
AND CONVENTIONS
COST ACCOUNTING IS SCIENCE
AND ART: SCIENCE BECAUSE IT CONSISTS OF SYSTEMATIC KNOWLEDGE WHICH A COST
ACCOUNTING MUST POSSESS. IT IS ART ALSO AS IT REQUIRES THE APPLICATION OF
KNOWLEDGE AND SKILL BY COST ACCOUNTANT.
COST ACCOUNTING AS
PROFESSION
SCOPE OF
COST ACCOUNTING
COST ASCERTAINMENT:-
1.
COLLECTION AND ANALYSIS OF EXPENSES LIKE HISTORICAL
COST/ESTIMATED COSTS/STANDARD COSTS
2.
MEASUREMENT OF PRODUCTION OF THE DIFFERENT PRODUCTS AT
THE DIFFERENT STAGES OF MANUFACTURE LIKE SPECIFIC ORDER COSTING,OPERATION
COSTING ETC
3.
LINKING UP OF PRODUCTION WITH THE EXPENSES LIKE
MARGINAL COSTING TECHNIQUE/TOTAL COSTING TECHNIQUE ETC
·
COST ACCOUNTING:-FORMAL MECHANISM BY
WHICH COSTS OF PRODUCTS AND SERVICES ARE ASCERTAINED AND CONTROLLED. IT IS THE
PROCESS OF ACCOUNTING FOR COSTS WHICH BEGINS WITH THE RECORDING OF EXPENDITURE
AND ENDS WITH THE PREPARATION OF STATISTICAL DATA.
COST CONTROL:-INVOLVES THE ESTABLISHMENT
OF STANDARD OF PERFORMANCE,MEASURING ACTUAL PERFORMANCE AND COMPARING ACTUAL
WITH THE STANDARD AND TAKING CORRECTIVE ACTIONS.
COST REDUCTION:PLANNED POSITIVE APPROACH
TO REDUCE EXPENDITURE. CORRECTIVE FUNCTION BY CONTINUOUS PROCESS OF ANALYSIS OF
COSTS,FUNCTIONS ETC
COST AUDIT:-VERIFICATION OF THE
CORRECTNESS OF COST ACCOUNTS AND A CHECK OF FOLLOWING TO COST ACCOUNTING PLANS
ADVANTAGES
- PROFITABLE AND UNPROFITABLE ACTIVITIES ARE
DISCLOSED
- IT ENABLES A CONCERN TO MEASURE THE
EFFICIENCY AND THEN IT TO MAINTAIN.
IT PROVIDES DATA FOR THE PURPOSE OF COMPARISON.
- PROVIDES INFORMATION UPON WHICH ESTIMATES AND
TENDERS ARE BASED
- EXPLAIN THE COST INCURRED AND PROFIT MADE IN
VARIOUS LINES OF BUSINESS AND PROCESSES AND PROVIDE DATA FOR PLANNING FOR
THE FUTURE
- BY DISCLOSING THE SOURCES OF LOSS/WASTAGE IT HELPS
IN INCREASING PROFITS
- PROVIDE RELIABLE DATA FOR THE PURPOSE OF
COMPARISON
- IT FACILITATES GOVERNMENT IN MAKING TAXATION
ASSESSMENT
- INSTALLATION OF THE COSTING SYSTEM WILL HELP THE
PUBLIC IN THE FAIRNESS OF THE PRICES CHARGED
- THE EFFICIENCY OF THE PUBLIC SECTOR CAN BE BEST
JUDGED BY COMPARING THE COST OF PRODUCTION WITH THE COST OF PRODUCTION OF
PRIVATE SECTOR.
- IT ENSURES OPTIMUM UTILIZATION OF RESOURCES
LIMITATION
1.
LACKS A UNIFORM PROCEDURE: POSSIBLE TWO EQUALLY
COMPETENT COST ACCOUNTING MAY PRODUCE DIFFERENT RESULTS FROM THE SAME
INFORMATION
2.
LARGE NUMBER OF CONVENTIONS, ESTIMATES AND FLEXIBLE
FACTORS:-
3.
TOO MUCH FORMALITIES: WHICH IS NOT POSSIBLE OF SMALL
ORGANIZATION
4.
COST ACCOUNTING HAS NOT CONTRIBUTED MUCH FOR HANDLING
FUTURISTIC INFORMATION'S.
OBJECTIONS
1.
NO NECESSITY
2.
INAPPLICABILITY
3.
FAILURE IN MANY CASES
4.
MERE MATTER OF FORMS AND RULING
MAIN
PRINCIPLES
1.
CAUSE –EFFECT RELATIONSHIP
2.
CHARGE OF COST AFTER INCURRENCE
3.
PAST COST SHOULD NOT FORM PART OF FUTURE COST
4.
EXCLUSION OF ABNORMAL COSTS
5.
PRINCIPLE OF DOUBLE ENTRY
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