Defination of Cost Accounting?

Def: The systematic recording and analysis of the costs of material,

labor, and overhead incident to production.
A branch of accounting that observes and calculates the actual cos
ts of a company's operations. Internal managers,rather than auditor
s, use cost accounting most of the time to identify aspects of their co
mpany where costs can becut. For example, a manager may enlist a
cost accountant to determine the most expensive aspects of his/herb
usiness that is, where the money goes. The accountant may make a
detailed report so that the manager may makedecisions based upon
it. Because cost accounting is primarily internal, it need not conform
to the Generally Accepted Accounting
Principles. It is also called managerial or management accounting

Purpose of Cost Accounting?

The purpose of cost accounting is to enable management to get as
for as possible the exact cost of goods manufactured or services
rendered, to furnish necessary facts and figures for adequate and
effective managerial control and to provide management data
necessary to determine output and products that will result in most
profitable operations. The purpose of cost accounting is to assess
the profitability of a product or services, a department or the
organization.
In order to perform these functions properly it is imperative for the
cost accountant to be familiar with managerial problems and to
understand fully what facts and figures should be collected and
presented to the management for the effective and profitable

solution of these problems.

The nature and type of cost accounting working a specific concern
will depend to the large extent on a number of variable factors such
as Size of firm Whether large, medium, or small, Number of products
being produced or services rendered, The nature of manufacturing
operations, marketing and administrative processes, The
expenditure which the firm can afford in the installation and
successful operation of cost accounting system, The requirements of
the management and Nature of the business whether manufacturing
or merchandising.

Nature, Scope & importance of cost accounting?

Nature
It classifies, records, presents, and interprets transactions in and
interprets in a significant manner the material, labour and
overheads cost.

Scope of Cost Accounting

The terms costing and cost accounting are many times used
interchangeably. However, the scope of cost accounting is broader
than that of costing. Following functional activities are included in
the scope of cost accounting:
1. Cost book-keeping: It involves maintaining complete record of all
costs incurred from their incurrence to their charge to departments,

products and services. Such recording is preferably done on the

basis of double entry system.
2. Cost system: Systems and procedures are devised for proper
accounting for costs.
3. Cost ascertainment: Ascertaining cost of products, processes,
jobs, services, etc., is the important function of cost accounting.
Cost ascertainment becomes the basis of managerial decision
making such as pricing, planning and control.
4. Cost Analysis: It involves the process of finding out the causal
factors of actual costs varying from the budgeted costs and fixation
of responsibility for cost increases.
5. Cost comparisons: Cost accounting also includes comparisons
between cost from alternative courses of action such as use of
technology for production, cost of making different products and
activities, and cost of same product/ service over a period of time.
6. Cost Control: Cost accounting is the utilisation of cost
information for exercising control. It involves a detailed examination
of each cost in the light of benefit derived from the incurrence of the
cost. Thus, we can state that cost is analysed to know whether the
current level of costs is satisfactory in the light of standards set in
advance.
7. Cost Reports: Presentation of cost is the ultimate function of cost
accounting. These reports are primarily for use by the management
at different levels. Cost Reports form the basis for planning and
control, performance appraisal and managerial decision making.

Importance of Cost accounting

Cost accounting has many importance. Specially, the following

parties are benefitted from it.
1.

Importance to management

Management is highly benefitted with the introduction of cost

accounting. It helps to ascertain the cost and selling price of the
product. Cost data help management to formulate the business
policies. The introduction of budgetary control and standard cost
would be an aid to analyze cost. Its also helps to find out reasons for
profit or loss. It provides data to submit tender as well. Thus, cost
accounting is an aid to management.

2.Importance to investors
Investors can obtain benefit fro the cost accounting. Investors want
to know the financial conditions and earning capacity of the
business. An investor must gather information about organization
before making investment decision and investor can gather such
information from cost accounting.
3.Importance of consumers
The ultimate aim of costing is to reduce the cost of production to
minimize the profit of business. Reduction in the cost is usually
passed on the consumers in the form of lower price. Consumers get
quality goods at a lower price.
4..Importance to Employees
Cost accounting helps to fix the wages of the workers. Efficient
workers are rewarded for their efficiency. It helps to induce incentive
wage plan in business.

Difference Between Financial, Cost & Managrerial Accounting

Financial accounting : The purpose of this branch of accounting is
to keep a record of all financial transactions so that:
(a) the profit earned or loss sustained by the business during an
accounting period
can be worked out,
(b) the financial position of the business as at the end of the
accounting period can be ascertained, and
(c) the financial information required by the management and other
interested parties can be provided.
Cost Accounting : The purpose of cost accounting is to analyze the
expenditure so as to ascertain the cost of various products
manufactured by the firm and fix the prices. It also helps in
controlling the costs and providing necessary costing information to
management for decision-making.
Management Accounting : The purpose of management accounting
is to assist the management in taking rational policy decisions and
to evaluate the impact of its decisions and actions.