UNIT-I

INTRODUCTION
Cost accounting is a branch of accounting and has been developed due to
limitations of financial accounting. Financial accounting is primarily concerned
with record keeping directed towards the preparation of profit and loss account
and balance sheet. It provides information regarding the profit and loss that the
business enterprise is making and also its financial position on a particular date.
The information concerning the business enterprise is helpful to management to
control in a general way the major functions of a business viz., finance,
administration, production and distribution but details regarding operating
efficiency of these divisions are lacking. The need for determination and control
of costs as well as problems of pricing in large industrial organization
necessitated inventions and application of new set of principles of accounting
and thus emerged cost accounting as an advanced phase of financial accounting.

Q.GIVE THE MEANING OF THE FOLLOWING TERMS:

a COST

b COSTING
c COST ACCOUNTING AND
d COST ACCOUNTANCY
CostCost is the amount of expenditure (actual or notional) incurred or
attributable to a given thing I.C.M.A.
Cost is the price paid for something
Oxford Dictionary.
The term cost may be described as the total of all expenses incurred,
whether paid or due, in the production and sale of a product or expended in
rendering a service.
CostingThe term costing signifies the technique and process of ascertaining
cost. The term techniques consists of a Body of principles and rules by which
the cost is ascertained. Costing is referred to as classifying, recording and
appropriate allocation of expenditure for the determination of the costs of
products or services.
Cost Accounting
It is the method of accounting for cost J.M. Fremgen in his book
Accounting for managerial analysis states that Cost accounting is the process
of recording, classifying, allocating and reporting various costs incurred in the
operations of an enterprise.

Cost Accountancy
The I.C.M.A has defined cost accounting as follows: 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 there from for the purpose of
managerial decision making.
Thus the term includes costing, cost accounting, budgetary control, cost control
and cost audit.

Q. DISCUSS THE SCOPE OF COST ACCOUNTING.

The scope of cost accounting is very wide and includes the following:
Cost ascertainmentIt 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. In fact, the varying procedures
for the collection of expenses gives rise to different system of costing as
historical cost, estimated cost and standard cost etc. Again, the varying
procedures for the management of production have resulted in different methods
of costing such as specific order costing, operation costing etc.
Cost accountingIt is the process of accounting for cost, which begins with recording of
income and expenditure and ends with the preparation of statistical data. It is
formal mechanism by means of which costs of products or services are
ascertained & controlled. Costs can be ascertained either by following the
historical or predetermined system of costing. Cost can be predetermined either
by standard costing or estimated costing.
Cost controlCost control is the guidance and regulation by executive action of the
costs of operating and understanding. It aims at guiding the actual towards the
line of targets. Regulate the actual if they deviate from targets. This guidance
and regulations is done by an executive action.

Q. EXPLAIN THE OBJECTIVES OF COST ACCOUNTING.

The object of cost accounting is to ascertain the true cost of every

operation through a close watch-cost analysis and allocation. The main
objectives are as follows:

1. Ascertainment of costIt enables the management to ascertain the cost of product, job, contract,
service or unit of production so as to develop cost standard. Costs may be
ascertained under different circumstances, using one or more types of costing
principles standard costing, marginal costing, uniform costing etc.
2. Fixation of selling priceThe price of a product consists of total cost and the margin required. Cost
accounts provide detailed information regarding total cost in the form of various
components. They also provide information in terms of fixed cost and variable
cost, so that the extent of price reduction to be done in case of intensive
competition etc can be decided.
3. Cost controlThe object is to minimize the cost of manufacturing. Comparison of actual
cost with standard reveals the discrepancies variances, if the variances are
adverse, the management enters into investigation so as to adopt corrective
action immediately.
4. Matching cost with revenueThe determination of profitability of each product, process, department etc
is the important object of costing.
5. Special cost studies and investigationsIt undertakes special cost studies and investigates and these are the basis for
the management in decision making or policies. This will also include pricing of
new products, contraction or expansion programmes, closing down or continuing
a department, product mix, price reduction in depression etc.
6. Preparation of financial statements Profit & Loss a/c, Balance SheetTo prepare these statements, the value of stock, work in progress, finished
good etc., are essential in the absence of the costing department, when we have
to close the accounts, it rather takes too much time.
But a good system of costing facilitates the preparation of the statements
as the figure are easily available; they can be prepared monthly even weekly.