Group Members

Amruta Kiran Nikita Yogita Gauri Harsha

Roll No
11BA03 11BA07 11BA12 11BA17 11BA21 11BA25

Cost Accountancy

Cost Accounting

Costing

Cost

Cost
The term cost indicates the amount of expenditure

incurred on, or attributable or cost unit. Cost = Raw material + Labour + Overhead The amount which has being required to produce the product is known as the cost. Cost means the price paid for something.

Costing
A managerial accounting method that describes when

all fixed and variable costs, including manufacturing costs, are used to compute the total cost per unit. Full costing includes these costs when computing the amount of money it takes to produce and distribute one unit of output. Full costing is also known as "full costs" or "absorption costing.

Cost Accounting
A method of accounting in which all costs incurred in

carrying out an activity or accomplishing a purpose are collected, classified, and recorded. This data is then summarized and analyzed to arrive at a selling price, or to determine where savings are possible. In contrast to financial accounting (which considers money as the measure of economic performance) cost accounting considers money as the economic factor of production.

Cost Accountancy
The terminology of cost accountancy publish by the

institute of cost and management Accountants, London defines cost accountancy 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 therefore for the managerial decision marking.

Advantages of a Cost Accounting

A good Cost Accounting System helps in identifying

unprofitable activities, losses or inefficiencies in any form. The application of cost reduction techniques, operations research techniques and value analysis technique, helps in achieving the objective of economy in concern's operations. Continuous efforts are being made by the business organization for finding new and improved methods for reducing costs.

 Cost Accounting is useful for identifying the exact

causes for decrease or increase in the, profit/loss of the business. It also helps in identifying unprofitable products or product lines so that these may be eliminated or alternative measures may be taken. It provides information and data to the management to serve as guides in making decisions involving financial considerations.

 Cost Accounting is quite useful for price fixation. It

serves as a guide to test the adequacy of selling prices. The price determined may be useful for preparing estimates or filling tenders. Cost comparison helps in cost control. Such a comparison may be made from period to period by using the figures in respect of the same unit of firms or of several units in an industry by employing uniform costing and inter-firm comparison methods. Comparison may be made in respect of costs of jobs, processes or cost centres.

 The cost of idle capacity can be easily worked out,

when a concern is not working to full capacity. The use of Marginal Costing technique, may help the executives in taking short term decisions. This technique of costing is highly useful during the period of trade depression, as the orders may have to be accepted during this period at a price less than the total cost.

Limitations of Cost Accounting

Cost accounting needs to identify the different types

of expenses and allocation of expenses is considered as a complicated system of accounting. It requires number of steps in ascertaining such details. So it involves a more complex system. More complex and complicated system of cost accounting is one of the limitation facing by the cost accounting.

 In installing and maintaining cost accounting system

requires more man power and resources. More analysis, allocation and absorption of overheads requires considerable amount of additional work. If the expenses incurred in ascertaining the cost is more than what is derived from it, then the process of cost accounting is meaningless. In short, the expenses of cost accounting should not be more than the profit derived from cost accounting. Many companies does not adopt cost accounting owing the fact that it is more expensive and not economical.

 Inapplicability of costing method and

technique. Technique and methods of cost accounting differ from organization to organization. One standard method is not adequate for all the requirement of different organizations. It depend on the nature of business and the type of service/product manufactured by the firm. If wrong technique or method is used, it will affect the result. So inapplicability of same costing method and technique is the one of the main limitation of cost accounting.

 Not suitable for small scale units: One of the

limitation faced by the cost accounting in installing it in all types of business is that it is not applicable to small scale units. Through the traditional accounting, small scale units can control the cost effectively. Lack of Accuracy: Use of notional cost such as standard cost, estimated cost etc would not bring out the actual cost of the product. So the cost accounting lacks the accuracy of its results.

 Lacks social Accounting: Social accounting is

outside the scope of cost accounts. Cost accounting fails to take into account the social obligation of the business. Need preparation of frequent reconciliation to verify accuracy. Results shown by cost accounts differ from those of financial accounts. Preparation of reconciliation statements to verify the accuracy is frequently required. This leads to unnecessary increase in workload.

 Duplication of Work: Many industrial units function

effectively and control the cost effectively with the financial accounting. Preparing cost accounting is unnecessary for them and it involves duplication of accounting work. Does not control Cost by itself: Cost accounting will not control the cost. It only bring out the possibility of areas which needs control. If the organization does not have a efficient management, the reports and results brought out by the cost accountant is useless. So cost accounting will not control the cost by itself. It needs an effective and efficient management to use it.

 It is based on estimation and previous data: Most of

the data used by a cost accountant is based on estimation of indirect costs, assumptions and previous data. Not using the actual data and costs is the limitation of cost accounting. Use of Secondary Data: Cost accounting depends on financial statements for a lot of information. Any errors or short coming in the information will affect the results. Lack of cooperation of employees: Cost accounting depends heavily on the cooperation of employees concerned. Lack of cooperation of employees will affect the overall performance of cost accounting. Non-cooperation or opposition from employees will affect the results.

 It only bring out the cost of goods or services. To

find out the operational results, we need to depend on financial accounting. Cost accounting will not bring forth the financial status of the company. It serves the information need of the management: We cannot depend on cost accounting for the financial information required by the share holders, creditors, employees and the society at large. It only serves the requirement of information needed by the management. Not useful for determining the tax liabilities: We cannot treat cost accounting as a basis for determining the tax liabilities of the business. Financial accounting is required for the determination of tax liabilities.

Thank You

And SORRY