Explains cost accounting?Discuss it scopes, advantages,limitations?

Explains cost accounting? Discuss it scopes, advantages and limitations? 

Introduction  of  cost accounting  :-

Cost Accounting is a business practice in which we record, examine, summarize, and study the company’s cost spent on any process, service, product or anything else in the organization. This helps the organization in cost controlling and making strategic planning and decision on improving cost efficiency. Such financial statements and ledgers give the management visibility on their cost information.

 Management gets the idea where they have to control the cost and where they have to increase more, which helps in creating a vision and future plan. There are different types of cost accounting such as marginal costing, activity-based costing, standard cost accounting, lean accounting. In this article, we will discuss more objectives, advantages, costing and meaning of costs.

Meaning of cost accounting :-

It is a process via which we determine the costs of goods and services. It involves the recording, classification, allocation of various expenditure ,and creating financial statements. This data is generally used in financial accounting.

This helps us calculate the costs of the various goods. It also involves a suitable presentation of this data for the purposes of cost control and guidance to the management 

It deals with the cost of every unit, job, process, order, service, etc, whichever is applicable and includes the cost of production, cost of selling and cost of distribution.

Scopes/objectives of cost accounting :-

There is a relationship among information needs of management, cost accounting objectives, and techniques and tools used for analysis in cost accounting.

1. Ascertainment of cost.
2. Controlling cost.
3. Ascertainment of Profitability.
4. Classification of Cost.
5. Fixation or Selling Prices.
6. Facilitating preparation of financial and other statements.

Cost accounting has the following main scopes /objectives to serve:

Ascertainment of cost

Cost ascertainment involves the collection and classification of cost in the first step. Those items of expenses which are capable of charging directly to the products manufactured are allocated.

Then the other expenses which are not capable of direct allocation are apportioned under a suitable basis. Thus the cost of production of goods manufactured is ascertained.

Controlling cost

Cost accounting helps in attaining the aim of controlling cost by using various techniques such as Budgetary Control, Standard costing, and inventory control.

Each item of cost [viz. material, labor, and expense] is budgeted at the beginning of the period and actual expenses incurred are compared with the budget. This increases the efficiency of the enterprise.

Ascertainment of Profitability

Cost accounting helps in ascertaining the costing profit or loss of each product, process, job, operation or service rendered on an objective basis by matching cost with the revenue of the activity.

The statement of profit or losses and Balance Sheet also submitted to the management periodically.

Classification of Cost

Cost accounting classifies cost into different elements such as materials, laborer and expenses. It has further been divided as a direct cost and indirect cost for cost control and recording.

Fixation or Selling Prices

Cost accounting guides management regarding the fixation of selling prices of the products. It is also helpful for preparing tender and quotations.

Facilitating preparation of financial and other statements

Cost accounting helps to produce statements at short intervals as the management may require.

The financial statements are prepared generally once a year or half-year to meet the needs of the management.

To operate the business at high efficiency, it is essential for management to have a review of the production, sales, and operating results.

Cost accounting provides daily, weekly or monthly statements of units produced, accumulated cost with analysis. Cost accounting system provides immediate information regarding stock of raw material, semi-finished and finished goods.

Importance / Advantages of Cost Accounting :-

The limitation of financial accounting has made the management to realize the importance of cost accounting:-

• It helps in cost reduction.
• Ascertainment of cost.
• Benefits of the National Economy.
• Fixation of responsibility.
• Price fixation.
• Inventory controls.
• Elimination of wastage.
• It helps in checking the accuracy of the financial account.
• Facilities cost comparison.

The role/importance/ advantages of cost accounting is discussed in .

Helps in cost reduction

The cost can be reduced in the long-run when cost reduction programs and improved methods are tried to reduce costs.

Ascertainment of cost

Cost accounting helps the management in the ascertainment of cost of the process, product, Job, contract, activity, etc., by using different techniques.

Identifying unprofitable activities: With the help of cost accounting the unprofitable activities are identified, so that the necessary corrective action may be taken.

Benefits of the National Economy

An efficient costing system benefits the national economy by stepping up government revenue by achieving higher production. The overall economic developments of a country take place due to the efficiency of production.

Fixation of responsibility

For appropriate cost accounting, cost centers and responsibility centers are determined.

Price fixation

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.

Inventory controls

Cost accounting helps to control cost by using techniques like a perpetual inventory system, ABC analysis, economics order quantity, etc

Elimination of wastage

As it is possible to know the cost of the product at every stage, it becomes possible to check the forms of waste, such as time and expenses, etc, are in the use of machine equipment and material.

Helps in checking the accuracy of financial account

Cost accounting helps in checking the accuracy of financial accounts with the help of reconciliation of the profit as per financial accounts with the profit as per cost account.

Facilities cost comparison

Costing accounting enables management to make cost comparisons of various jobs, products, departments, etc. to improve performance.

Limitations / Disadvantages  of  cost accounting :-

Besides a number of advantages, cost accounting sufferers from a number of limitations. Some of them are mentioned below:

1. Lack of uniformity

Cost accounting lacks a uniform procedure. It is possible that two equally competent cost accountants may arrive at different results from the same information. Keeping this limitation in view, all cost accounting results can be as mere estimates.

2. Conceptual diversity

There are a large number of conventions and flexible factors such as classification of cost into its elements, issue materials on average or standards price, apportionment of overhead expenses, arbitrary allocation of joint costs, division of overhead into fixed and various and variable costs, division of cost into normal and abnormal and controllable and non-controllable and adoption of marginal and standard costs due to which it becomes difficult to have exact costs. In which a contacts, the reliable of cost accounting might be low.

3.Costly

There are many formalities which are to be observed by a small and medium size concerned due to which the establishment and running costs are so much that it becomes difficult for their concerned to afford us cost. Thus it can be used only by big concerned.

4. Ignorance of futuristic situation

The contribution of cost accounting for heading futures situation has not been much for example, it is has not evolved so far any tool for heading inflation situation.

5. Lack of double entry systems

Under cost accounting. A double entry system is not adopted that does not enable to checks the arithmetic's accuracy of the transaction and locate the errors.

6. Developing stage

Cost accounting is to development stage since its principle concepts and conversions are not fully developed.