Definition of cost accounting :
The team 'cost' has to be studied in relation to its purpose and conditions as per the definition by institute of cost management Accountants, now known as chartered institute of management accountants,
" cost is the value of economic resources used as a result of producing or doing the thing costed".
Costing:
It's refer to the technique and processes of ascertaining costs and studies the principles and rules concerning the determination of costs of products and services".
Cost Accounting:
The process of accounting for cost from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost 'centers' and cost units. In its wide's usage it "embrace" the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned".
Objectives of cost accounting:
Cost accounting has become an indispensable tool to management for exercising effective decisions. However, the following are the usual objectives raised against cost accounting:
1) cost accounting is costly to operate:
One of the objections against cost accounting is that it involves heavy expenditure to operate.
No doubt, expenses are involved in the introduction and operation of cost accounting system. This is the case with any accounting system: the benefits derived by operating the system are more than the cost. Therefor, an organization need not hesitate to install and operate the system.
2) cost accounting is unnecessary:
It is felt by a few that cost accounting is of recent origin and an enterprise can survive without cost accounting.
No doubt financial accounting may be helpful to draw profit and loss account and balance sheet, but an enterprise can work efficiently with the help of cost accounting, and it is necessary to increase efficiency and profitability in the long run.
3)Cost accounting involves many forms and statement:
It is pointed against cost accounting that it involves usage of many forms and statements, which leads to monotony in filling up of forms and increase of paper work.
It is true that cost accounting is operated by introducing many forms and preparation of statements. This will become routine and as time passes the utility of forms is 'realized' and the forms can be reviewed, revised, simplified and minimized.
4) costing may not be applicable in all types of industries:
Existing methods of cost accounting may not be applicable in all types of industries.
Cost accounting methods can be devised for all types of industries, and services.
5) It is based on estimations:
Some people claim that costing system relies on predetermined data and therefor it is not reliable.
Costing system estimates costs scientifically based on past and present situations and with suitable modifications for the future. This leads to accurate cost figures based on which management can initiate decisions. But for the predetermined costs, cost accounting also becomes another (historical accounting)
Limitations of cost accounting:
1) Lack of uniformity
2) second hand data
3) conventions
4) uncertainty
5) costly
6) Applicable
7) some items
You must be logged in to post a comment.