Objectives of Cost Accounting: -
The main objectives or purposesof Cost accounting are
Ascertainment of Cost
It enables the Management to ascertainthe cost of product, job, contract, services etc. The cost is calculated,by aggregating expenses subject to certain concepts and conventions.
Analysis of Cost
- Total cost is broken down into severalconstituent parts according to some basis for eg. Material labourexpenses. The detail information about these parts helps to know thesignificance of each in the total cost.
The object is to minimize the cost of manufacturing,comparison of actual cost with standards, reveals the discrepancies,variances. If the variances are adverse the management enters intoinvestigation so as to adopt corrective action immediately.
Reduction of cost
- Reduction of cost refers to the permanentreduction in the cost of a product or service without impairing thequality and without affecting the purpose for which it is intended to beused. Due to an instance competition in the market, the managementhas little scope to vary the sales price. In such situation, it becomesnecessary to look into the activities that reduce the cost component.
Fixation of selling price
- Cost accounting provides costinformation on the basis of which selling prices of products or servicesmay be fixed. In periods of depression cost accounting guides indeciding the extent to which the selling prices will be reduced to meetthe special situation.
Guide to business policy
: - Cost accounting aims at serving theneeds of management in conducting the business with more efficiency.Cost data provides guidelines for various managerial decisions, likemake or buy, selling below cost, utilization of idle plant capacity,introduction of a new product etc.
Functions of Cost accounting
In order to pursue the objectives cost accounting is expected toperform the following functions.
. Cost book keeping
It is a process of recording the relevanttransactions to facilitate ascertainment of cost various accounts aremaintained according to the principles of cost accounting.
: - This is the function of establishing the relationshipbetween the cost and the various determinants of cost. It involves the