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COST AND MANAGEMENT

ACCOUNTING

AN INTRODUCTION

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COSTING-

It is a technique and processof ascertaining costs.

COST ACCOUNTANCY-

Cost accounting relates to thecollection, classification,ascertainment of cost and itsaccounting and controlrelating to the variouselements of cost.

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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 andcost reduction.

It establishes budgets and standards so that actual cost

may be compared to find out deviations or variances.

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DIFFERENCE BETWEEN COSTING

AND COST ACCOUNTING

BASIS COSTING

NATURE It is a technique and

process of ascertaining

costs.

SCOPE Includes principles andrules which govern the

procedure of

ascertaining the cost of

products/ services.

COST ACCOUNTING

It is regarded as a specialized

branch of accounting.

Involves classification,accumulation, assignment and

control of costs.

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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 ofproduction 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.

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COST CONTROL:

Cost control is the guidance and regulation by executive action ofthe 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.

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OBJECTIVES OF COST

ACCOUNTING

To ascertain the cost per unit of thedifferent products manufactured.

To provide requisite data and serve as aguide for fixing prices of products

manufactured. To ascertain the profitability of each of

the products and advise management asto how these profits can be maximized.

To advise management on futureexpansion policies and proposed capitalprojects.

To present and interpret data formanagement planning, evaluation of

performance and control

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BROADLY BEING.

1. Ascertainment and analysis ofcost and income by product,

function and responsibility.

2. Accumulation and utilizationof cost data for control

purposes to have the minimum

possible cost consistent with

maintenance of quality.

3. Providing useful data tomanagement fotr taking

decisions.

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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;

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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 tostocktaking;

The exact cause of a decrease or an increase

in profits or loss can be detected;

It is also helpful to the government and theconsumers.

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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 futuristicsituations 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.

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INSTALLATION OF

COSTING SYSTEM

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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 systemshould be avoided.

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STEPS FOR INSTALLATION

1. Objective to be achieved throughthe costing system.

2. Studying the existing organization

and routine.3. Deciding thestructure of cost

accounts.

4. Determining thecost rates.5. Introducing the system.

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6. Organizing the cost office

a) stores accountsb) labor accounting

c) cost accounts

d) cost control7.Relationship of cost office to other

departments.

8.Authority and responsibility should

be clearly defined.

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DIFFICULTIES IN INSTALLING

COSTING SYSTEM

Lack ofsupport from topmanagement;

Resistance from the

existing accounting staff;Non-cooperation at other

levels of organization;

Shortageof trained staff;

Heavy cost of operating thesystem.

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STEPS TO OVERCOME

DIFFICULTIES

Support from the top management;

Utility of system to existing staff;

Workers confidence for cooperation;

Trainingof existing accounting staff;

Cost system according tospecific requirements ofconcern

Propersupervision.

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