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The science of cost accounting has developed primarily to serve the needs of the

management. The techniques of cost accounting are the best tools by which management
may conduct a business towards profitable operations. It is so much allied to management
that it is difficult to indicate where the cost accounting ends and managerial control begins.
Cost Accounting has many advantages. The following are the most important advantages of
a good cost accounting system:
Profitable and unprofitable Activities:
In Cost Accounting profitable and unprofitable activities are disclosed. Management can take
steps to eliminate or to reduce those activities from which little or no profit is earned. It can
change the method of production in order to render such activities more profitable.
Classification and Subdivision of costs:
Costs are accumulated and classified by every possible division of business. In a good
costing system data regarding costs by functions, departments, processes, jobs or orders,
contracts and services can be easily computed. Thus it helps management to ascertain the
profitability of each product, sales area, division etc. in order to improve profit.
Cost Finding and Price-Fixing:
It provides accurate cost data which help in the fixation of selling price and for submitting
quotations. In periods of depression it enables the management to determine the extent to
which prices can be reduced.
Control of Materials and supplies:
Since in all types of cost accounting, materials and supplies must be accounted for in terms
of departments, processes, and units of production or services; a system of receiving,
handling, and issuing materials and supplies is an essential part of cost control. This will
eliminate or reduce misappropriation, embezzlement, obsolescence, and losses from scrap,
defective, and spoiled materials and supplies.
Control of Wages and Salaries:
Cost Accounting activities encourage accounting for labour by jobs and by operations. In
many manufacturing concerns daily summary reports are prepared to show the number of
hours and minutes worked and the wage rate for each worker per job or operation.
Cost Accounting is a benefit to the employer by establishing standards to measure the
efficiency of labour to assist in assignment of work to employees best fitted for it, and to
determine the unit cost of labour arising from each activity.
Overhead costs:
The Cost accountant first separates costs into direct and indirect items. Direct costs consists
of materials and labour that can be definitely

Cost Accounting

Cost accounting is the accounting of the cost. It is made of two words- Cost and Accounting. The
term cost denotes the total of all expenditures involved in the process of production. Thus, it covers
the costs involved in the production and the cost involved while receiving it. Accounting, on the other
hand, collects and maintains financial records of each income and expenditure and make avail of
such information to the concerned officials. Thus, cost accounting is a practice and process of cost

which determines the profitability of a business concern by controlling the cost with the application of
accounting principle, process and rules.
Cost accounting includes the presentation of the information derived there from for purposes of
managerial decision making. Thus, cost accounting is a arts as well as science. It is science
because it is a body of systematic knowledge having certain principles. It is an art as it requires the
ability and skill with which a cost accountant is able to apply the principles of cost accounting in
various managerial problems.
According to W.W.Bigg- Cost accounting is the provision of such analysis and classification of
expenditure as will enable the total cost of any particular unit of production to be ascertained with
reasonable degree of accuracy and at the same time to disclose exactly how such total cost is
According to R.N. Carter, Cost accounting is a system of recording in accounts the materials used
and labour employed in the manufacture of a certain commodity or on a particular job.
Thus, cost accounting is considered as an art as well as acinece. It is also a prime part of accounting
system which records systematically the cost involved in raw materials and labour used in the
process of production and the same time determines the total cost and unit cost of product. the
process of recording classifying and analyzing of cost is the cost accounting.
Objectives of Cost accounting.
1. Cost finding
2. Cost planning and controlling
3. Cost analysis for managerial decision


Advantages of Cost accounting

Help in Cost control
Help in Decision making
Guides in Price fixation
Help in cost reduction
Finds outs profitable and unprofitable operations
Finds out idle capacity

Importance of Cost accounting

Cost accounting has many importance. Specially, the following parties are benefitted from it.
1. Importance to management
Management is highly benefitted with the introduction of cost accounting. It helps to ascertain the
cost and selling price of the product. Cost data help management to formulate the business policies.
The introduction of budgetary control and standard cost would be an aid to analyze cost. Its also
helps to find out reasons for profit or loss. It provides data to submit tender as well. Thus, cost
accounting is an aid to management.

Importance to investors

Investors can obtain benefit fro the cost accounting. Investors want to know the financial conditions
and earning capacity of the business. An investor must gather information about organization before
making investment decision and investor can gather such information from cost accounting.

Importance of consumers
The ultimate aim of costing is to reduce the cost of production to minimize the profit of business.
Reduction in the cost is usually passed on the consumers in the form of lower price. Consumers get
quality goods at a lower price.
4. Importance to Employees
Cost accounting helps to fix the wages of the workers. Efficient workers are rewarded for their
efficiency. It helps to induce incentive wage plan in business.


Importance to Government
Cost accounting is one of the prime sources to provide reliable data to internal as well as external
parties. It helps government agencies to determine excise duty and income tax. Government
formulates tax policy, industrial policy, export and import policy based on the information provided by
the cost accounting.

Small Business >

Accounting & Bookkeeping >

Scope, Objective & Significance of Cost Accounting

by Devra Gartenstein, Demand Media

As a business owner, your financial survival depends on earning more than you spend, at
least over the long term. Cost accounting is the process of keeping track of expenditures and
analyzing them relative to earnings. Cost accounting information guides management
decisions, showing which expense categories are unsustainably high and which offer the
easiest path to profitability. The better the information you input about how your company
spends its money, the better the insights you'll extract about how to make your business
more profitable.

Scope of Cost Accounting

Cost accounting addresses business expenditures, or sums that your company spends to
operate its infrastructure and provide customers with products and services. The cost
accounting process tracks variable costs, or expenditures such as materials and payroll that
go directly into the products and services you provide. Cost accountants also tally fixed
costs, or other expenses such as rent and utilities that do not change much regardless of
sales volume.

Objective of Cost Accounting

The objective of cost accounting is to document and understand the ways your business
spends its money. This process is important for tax purposes, so the returns you file
accurately reflect your company's expenses. Cost accounting information is also valuable for
internal company operations, giving you the tools to analyze trends and make strategic
decisions. Calculating unit costs, or the amount you spend to create each unit you sell,
provides you with a benchmark for evaluating overall profitability and break-even points.

Significance of Cost Accounting

The significance of cost accounting is its capacity to shed light on the overall profitability of
company operations. The better you understand the financial workings of your business, the
better you can fine-tune processes and limit unnecessary waste. Cost accounting allows you
to look past the day-to-day mechanics of managing cash flow to assess whether your
company is actually making money or whether you need to tighten systems and reassess

Successful Cost Accounting

The better the information you enter into your cost accounting system, the better the
information you get out of it. Successful cost accounting depends initially on having a useful
and relevant list of expense categories and then conscientiously entering expense
information over time so your system is accurate and complete. A successful cost
accountant then takes this process full circle by working with managers to apply the
information reflected in his reports, cutting costs and increasing profits.