E-Book - Introduction To Cost Accounting Lyst9477

Contents
1 Introduction to Cost Accounting .......................................................................................................................... 2

1.1 Meaning ........................................................................................................................................................ 2
1.2 Objectives of Cost Accounting ...................................................................................................................... 3
1.3 Scope of Cost Accountancy .......................................................................................................................... 3
1.4 Difference between Financial, Cost and Management Accounting ............................................................. 4
1.5 Importance of Cost Accounting .................................................................................................................... 4
1.6 Limitation of Cost Accounting ...................................................................................................................... 5
2 Concept check....................................................................................................................................................... 6
1|P a g e Q U E R Y ? H E L L O @ E D U T A P . C O . I N / 8 1 4 6 2 0 7 2 4 1
1 Introduction to Cost Accounting
Way back to 15th Century, no accounting system was there, and it was the barter system prevailed.
It was in the last years of 15th century Luca Pacioli, an Italian found out the double entry system of
accounting in the year 1494. Later it was developed in England and all over the world upto 20th
Century.
Cost Accounting has emerged as a specialized discipline from the initial years of 20th century.
1.1 Meaning
Cost Accountancy: Cost Accountancy is defined as ‘the application of Costing and Cost Accounting
principles, methods and techniques to the science, art and practice of cost control and the
ascertainment of profitability’. It includes the presentation of information derived there from for the
purposes of managerial decision making. Thus, Cost Accountancy is the science, art and practice of a
Cost Accountant.
(a) It is a science because it is a systematic body of knowledge having certain principles which a cost
accountant should possess for proper discharge of his responsibilities.
(b) It is an art as it requires the ability and skill with which a Cost Accountant is able to apply the
principles of Cost Accountancy to various managerial problems.
(c) Practice includes the continuous efforts of a Cost Accountant in the field of Cost Accountancy
Costing
Costing is defined as the technique and process of ascertaining costs. The technique in costing
consists of the body of principles and rules for ascertaining the costs of products and services. The
technique is dynamic and changes with the change of time. The process of costing is the day-to-day
routine of ascertaining costs. It is popularly known as an arithmetic process. For example, If the cost
of producing a product say ` 200/-, then we must refer material, labour and expenses accounting
and arrive the above cost as follows:
Finding out the breakup of the total cost from the recorded data is a daily process. That is why it is
called arithmetic process/daily routine. In this process we are classifying the recorded costs and
summarizing at each element and total is called technique.
1.2 Objectives of Cost Accounting
• To ascertain the Costs under different situations using

different techniques and systems of costing
• To determine the selling prices under different
circumstances
• To determine and control efficiency by setting standards
for Materials, Labour and Overheads
• To determine the value of closing inventory for preparing
financial statements of the concern
• To provide a basis for operating policies which may be
determination of Cost Volume relationship, whether to
close or operate at a loss, whether to manufacture or buy
from market, whether to continue the existing method of
production or to replace it by a more improved method of
production.... etc.
1.3 Scope of Cost Accountancy
The scope of Cost Accountancy is very wide and includes the following: -
(a) Cost Ascertainment: The main objective of Cost Accounting is to find out the Cost of product /
services rendered with reasonable degree of accuracy.
(b) Cost Control: It is the process of regulating the action so as to keep the element of cost within the
set parameters.
(c) Cost Records: This is the ultimate function of Cost Accounting. These records are primarily
prepared for use by the management at different levels. Cost records helps in planning and control,
performance appraisal and managerial decision making.
(d) Cost Audit: Cost Audit is the verification of correctness of Cost Accounts and check on the
adherence to the Cost Accounting plan. Its purpose is not only to ensure the arithmetic accuracy of
cost records but also to see the principles and rules have been applied correctly.
1.4 Difference between Financial, Cost and Management Accounting
To appreciate fully the objectives and scope of Cost Accounting, it would be useful to examine the
position of Cost Accounting in the broader field of general accounting and other sciences. i.e Financial
Accounting and Management accounting.
1.5 Importance of Cost Accounting

The limitation of financial accounting has made the management to realise the importance of cost
accounting. The importance of cost accounting are as follows:
1. Importance to Management
Cost accounting provides invaluable help to management. The advantages are as follows :
• Cost accounting helps the management in the ascertainment of cost of process, product, Job,
contract, activity, etc., by using different techniques such as Job costing and Process costing.
• By using demand and supply, activities of competitors, market condition to a great extent, also
determine the price of product and cost to the producer does play an important role. The
producer can take necessary
• help from his costing records.
• Cost can be reduced in the long run when cost reduction programme and improved methods
are tried to reduce costs.
• As it is possible to know the cost of product at every stage, it becomes possible to check the
forms of waste, such as time and expenses etc
• Cost accounting helps in checking the accuracy of financial account with the help of
reconciliation of the profit as per financial accounts with the profit as per cost account.
• Helps in Inventory Control
2. Importance to Employees
Worker and employees have an interest in which they are employed. An efficient costing system
benefits employees through incentives plan in their enterprise, etc. As a result, both the productivity
and earning
capacity increases.
3. Cost accounting and creditors
Suppliers, investor’s financial institution and other moneylenders have a stake in the success of the
business concern and therefore are benefited by installation of an efficient costing system. They can
base their judgement about the profitability and prospects of the enterprise upon the studies and
reports submitted by the cost accountant.
4. Importance to National Economy
An efficient costing system benefits national economy by stepping up the government revenue by
achieving higher production. The overall economic developments of a country take place due to
efficiency of production.
5. Data Base for operating policy
Cost Accounting offers a thoroughly analysed cost data which forms the basis of formulating policy
regarding day-to-day business, such as:
(a) Whether to make or buy decisions from outside?
(b) Whether to shut down or continue producing and selling at below cost?
(c) Whether to repair an old plant or to replace it?
1.6 Limitation of Cost Accounting
2 Concept check
1. Basic objective of cost accounting is ________
A. tax compliance.
B. financial audit.
C. cost ascertainment.
D. profit analysis.
Answer: Option C
2. Cost accounting started as a branch of

A. financial accounting
B. Management accounting
C. corporate accounting
D. vedic accounting
Answer: Option A
3. In brief, _________ is the activity of finding out the cost of products and services.
A. Financial accounting
B. Management accounting
C. Corporate accounting
D. Cost accounting
Answer: Option D

E-Book - Introduction To Cost Accounting Lyst9477

Uploaded by

Copyright:

Available Formats

E-Book - Introduction To Cost Accounting Lyst9477

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

E-Book - Introduction To Cost Accounting Lyst9477

Uploaded by

Copyright:

Available Formats

Contents

1 Introduction to Cost Accounting .......................................................................................................................... 2

• To ascertain the Costs under different situations using

1.3 Scope of Cost Accountancy

1.5 Importance of Cost Accounting

1.6 Limitation of Cost Accounting

2. Cost accounting started as a branch of

You might also like