Cost Accounting: The Basics

Objectives of Cost Accounting

The main objectives of Cost Accounting are:

  1. To ascertain the Costs under different situations using different techniques and systems of costing
  2. To determine the selling prices under different circumstances
  3. To determine and control efficiency by setting standards for Materials, Labour and Overheads
  4. To determine the value of closing inventory for preparing financial statements of the concern
  5. To provide a basis for operating policies such as:
    1. Whether to operate at a loss or close
    1. Whether to manufacture or buy from market, etc.

Scope of Cost Accountancy

The scope of cost accountancy is wide and includes:

  1. Cost Ascertainment: To find out the cost of product/services rendered with reasonable degree of accuracy.
  2. Cost Accounting: The process of Accounting for Cost which begins with recording of expenditure and ends with preparation of statistical data.
  3. Cost Control: The process of regulating the action to keep the element of cost within the set parameters.
  4. (Preparing) Cost Reports: These are primarily prepared for use by the management at different levels and help in planning and control, performance appraisal, and managerial decision-making.
  5. Cost Audit: The verification of correctness of Cost Accounts and check adherence to the Cost Accounting plan.

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