What is cost accounting

What is Cost AccountingCIMA(chartered institute of management

Accountants)

“The classifying recording and appropriate allocation of expenditure for the determination of cost, the relation

of these costs to sales value and ascertainment of profitability”

It consist of principles an rules:(a) The cost of Mfg a products e.g. chemical, television,

steel etc.(b) the cost of providing a service e.g. electricity,

transport etc.

What is Management Accounting(Managerial Accounting)

• “Management accounting is the development and interpretation of accounting information to aid management in running the business and in the day-to-day operation of an undertaking”

Financial Accounting

• “It deals with the financial resources, obligation and activities of an economic

entities”

Purpose of Management Accounting

• Management accounting is applied to provision of information for management activities such as decision making, planning and controlling.

Management accounting consist of four essential tasks:

1. COST DETERMINATION

2. COST CONTROL

3. PERFORMANCE EVAUATION

4.SUPPLYING INFORMATION FOR PLANNING AND DECISION MAKING

Nature of Cost Accounting

• It includes principles, techniques and system which are employed in a business to plan and control the utilization of its resources.

• The words costing and cost accounting are often use interchangeably

Scope of Cost Accounting

• All types of activities, Mfg and non-Mfg in which monetary value is involved, should consider the use of cost accounting e.g. wholesale and retail business, banking and insurance companies, railways, hostels, hospital, school, college etc all may employ cost accounting techniques to operate efficiently.

Objectives of cost accounting

(a) To ascertain the cost per unit of the different products manufactured by the business concern.

(b) To provide a correct analysis of cost both by processes or operations and by different elements of cost.

(c) To ascertain the profitability of each of products and advise the management as to how these profit can be increased.

(d) To advise management on future expansion policies and proposed capital projects.

(e) To present and interpret data for management planning, decision making and control.

(f) To help in the implementation of budgets and implementation of budgetary control.

(g) To guide management in the formulation and implementation of incentive bonus plans based on productivity and cost saving.

(h) To organize cost reduction programmes with the help of different department managers.

Costing- An aid to management

1. planning:

In which we plan what to do, how to do, and when to do etc.

2. Decision making:

(a) Fixation of price (b) price should be reduced or increased in future (c) whether new products introduced in the markets (d) whether the products should be exported or not.

3. Controlling:

Compare actual performance with the planned performance.

(a) Classification and sub-divisions of cost

(b) Control of material, labor and overhead cost

(c) Business policies

(d) Budgeting

(e) Standard for measuring efficiency

(f) Best use of limited resources

(g) Instruments of management control

(h) price determination

1. Scope:

The scope of mgt accounting broader than the cost accounting. Cost accounting provides only cost information but management accounting provides all type accounting information.

2. Emphasis:

In cost is focus on the cost information and in management main emphasis on decision making

Difference between Cost and Management Accounting

3. Techniques employed:

The various technique used by cost accounting such as budgetary control etc. management accounting also used these techniques but also addition ratio analysis, funds flow statement, statistical analysis and operation research etc.

4. Purpose:

The main purpose of cost accounting is the reporting of cost (actual and predetermined) of products services, jobs, processes, departments etc.

Mgt accounting use in formulation of policies, planning, controlling, decision making etc.

5. Evolution:

The evolution of cost accounting is mainly due to the limitations of financial accounting and evolution of management accounting is an extension of managerial aspects of cost accounting. The scope of management accounting is wide and broad based.

Difference between cost and financial accounting

1. Providing information:

Financial accounting concern with the profit and loss and financial position of the business. It provide information to owner and outsiders.

While management accounting provide information to management for proper planning operations, control and decision making.

2. Reports:

F.A reports operating results and financial position usually at the end of year.

C.A gives information through cost reports to mgt as and when desired.

3. Stocks:

In financial accounting stocks are solved at cost or market price and in cost accounting stocks are valued at cost.

4. Dealing:

Financial accounts deal mainly with actual facts and figures. Cost accounts partly deal with the actual facts and figures and partly with estimates.

5. Using:

In financial accounting only monetary information used (i.e. only monetary transactions are recorded)

In cost accounting non monetary like units is also used (i.e. it deals with the monetary and non monetary transactions)

Relationship of cost departments to others departments

1. The manufacturing departments:

2. The personnel departments interviews:

3. The treasury department:

4. The marketing departments:

5. The public relation departments:

6. The legal departments: