COST AND MANAGEMENT ACCOUNTING

AN INTRODUCTION

COSTINGIt is a technique and process of ascertaining costs. COST ACCOUNTANCYCost accounting relates to the collection, classification, ascertainment of cost and its accounting and control relating to the various elements of cost.

FEATURES OF COST ACCOUNTING

It is a process of accounting for costs. It records income and expenditure relating to
production of goods and services.

It provides statistical data on the basis of which future

estimates are prepared.

It is concerned with cost ascertainment, cost control and

cost reduction.

It establishes budgets and standards so that actual cost

may be compared to find out deviations or variances.

DIFFERENCE BETWEEN COSTING AND COST ACCOUNTING

BASIS COSTING
NATURE

COST ACCOUNTING
It is regarded as a specialized branch of accounting.
Involves classification, accumulation, assignment and control of costs.

It is a technique and process of ascertaining costs. Includes principles and rules which govern the procedure of ascertaining the cost of products/ services.

SCOPE

SCOPE OF COST ACCOUNTANCY

COST ASCERTAINMENT:
It deals with the collection and analysis of expenses, the measurement of production of the different products at the different stages of manufacture and the linking up of production with the expenses.

COST ACCOUNTING:
It is the process of accounting for cost which begins with recording of expenditure and ends with the preparation of statistical data. It is formal mechanism by means of which costs of products/ services are ascertained or controlled.

 COST CONTROL:
Cost control is the guidance and regulation by executive action of the costs of operating an undertaking. The cost can be controlled by standard costing, budgetary control, proper presentation and reporting of cost data and cost audit.

OBJECTIVES OF COST ACCOUNTING

To ascertain the cost per unit of the

different products manufactured. To provide requisite data and serve as a guide for fixing prices of products manufactured. To ascertain the profitability of each of the products and advise management as to how these profits can be maximized. To advise management on future expansion policies and proposed capital projects. To present and interpret data for management planning, evaluation of performance and control

BROADLY BEING.
1. Ascertainment and analysis of
2.
cost and income by product, function and responsibility. Accumulation and utilization of cost data for control purposes to have the minimum possible cost consistent with maintenance of quality. Providing useful data to management fotr taking decisions.

3.

ADVANTAGES
Profitable and unprofitable activities
are disclosed; Enables a concern to measure the efficiency and then to maintain and improve it; Provides information upon which estimates and tenders are based; Guides future production policies; Helps in increasing profits by disclosing the sources of waste; Furnishes reliable data for comparing costs in different periods;

 It discloses the relative efficiencies of

different workers; A sound business concern with a good system of costing can attract more investors; It enables a periodical determination of profits or losses without resort to stocktaking; The exact cause of a decrease or an increase in profits or loss can be detected; It is also helpful to the government and the consumers.

DISADVANTAGES
Adoption of costing system failed to produce the desired

results in many cases There are a large number of estimates and flexible factors; Many formalities are to be observed; Contribution of cost accounting for handling futuristic situations has not been much; Modern methods of costing are inapplicable to many types of industries; It lacks a uniform procedure; It is an expensive method.

INSTALLATION OF COSTING SYSTEM

FACTORS TO BE CONSIDERED WHILE INTRODUCING COST ACCOUNTING

Existing organization should be
disturbed as little as possible. Introduction of system should be smooth and gradual. Over-elaboration of system should be avoided.

STEPS FOR INSTALLATION

1. Objective to be achieved through 2. 3. 4. 5.
the costing system. Studying the existing organization and routine. Deciding the structure of cost accounts. Determining the cost rates. Introducing the system.

6. Organizing the cost office a) stores accounts b) labor accounting c) cost accounts d) cost control 7. Relationship of cost office to other departments. 8. Authority and responsibility should be clearly defined.

DIFFICULTIES IN INSTALLING COSTING SYSTEM

Lack of support from top

management; Resistance from the existing accounting staff; Non-cooperation at other levels of organization; Shortage of trained staff; Heavy cost of operating the system.

STEPS TO OVERCOME DIFFICULTIES

Support from the top management; Utility of system to existing staff; Workers confidence for cooperation; Training of existing accounting staff; Cost system according to specific requirements of concern Proper supervision.

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