Definition:

Cost Accounting:

Cost accounting is a branch of accounting that has evolved to overcome the limitations of financial
accounting. It is the process of accounting for cost, which is concerned more with the ascertainment,
allocation, distribution and accounting aspects of cost. It is that branch of accounting, which deals with
the classification, recording, allocation, summation and reporting of current and prospective costs.
Actually, it is the formal mechanism by means of which of products and services are ascertained and
controlled.

It is an internal reporting systems that aims to assist the management for planning and decision-making
it primary emphasizes on cost and deals with collection, analysis, interpretation and prospective for
managerial decision making on various business problems.

OR

Cost accounting is the accounting method for ensuring cost-effectiveness by accumulating, organizing,
recording, calculating, analyzing and assessing the overall expenses incurred on a product, process or
project, etc. It is mostly used in industrial units or factories where the goods are manufactured. Unlike
financial accounting, cost accounting is a broader perspective to review and control the performance of
the industries by the management.

Cost accounting is more concerned with short-term planning and its reporting period is much losses that
financial accounting. It deals with historic data but is also futuristic in approach. Cost accounting systems
cannot be installed without proper financial accounting systems. Each organization can develop a
costing systems best suited to its individual needs. In financial accounting the major emphasis is in cost
classification based on types of transaction e.g., salaries, repairs, insurance, stores etc. but in cost
accounting, the emphasis is laid on functions, activities, processes and on internal planning and control
and information needs of the organization.

From the above information definition, it can be concluded that cost accounting is accounting for cost
aimed at providing cost data, statements and reports for the purposes to assists the managements in
planning decision making and controlling.
Objective and Function of Cost Accounting:

The main objective and function of cost accounting are mentioned below:

1. To Ascertain Cost: The main objective of cost accounting is to ascertain the cost of goods and services.
The expenses that are incurred while producing goods or rendering services are called costs. Some
examples of costs are material, labor and other direct and indirect expenses. Under cost accounting,
cost are collected, classified and analyzed with the aim of finding out the total as well as per unit cost of
goods, services, processes, contract etc.

2. To Analyze Cost and Loss:

Another objective of cost accounting is to analyze the cost of each activity. The analysis of cost is
necessary to classify the cost into controllable or uncontrollable, relevant or irreverent, profitable or
unprofitable etc. similarly, under cost accounting the effects of material, idle time, breakdown or
damage of machine on the cost is also analyzed.

3. To Control Cost:

Cost control is a technique that is used to minimize the cost of product and services without
compromising on the quality. Cost accounting aims at controlling the cost by using various techniques,
such as standard costing and budgetary control.

4. To Help in Fixation of Selling Price:

Another important objective of cost accounting is to help in fixation of selling prices. The costs are
accumulated, classified and analyzed to ascertain cost per unit. The selling price per unit is calculated by
adding a certain profit on the cost per units. Under cost accounting, different techniques such as job
costing, batch costing, output costing services costing etc are used for determine the selling price.

5. To Aid the Management:

Cost accounting aims at assisting the management in planning and its importations by providing
necessary costing information that also enable the evaluation of the past activities as well as future
planning
 Limitations of Cost Accounting
Cost Accounting

Besides a number of advantages, cost accounting sufferers from a number of limitations. Some of them
are mentioned below:

1. Lack of uniformity:
Cost accounting lacks a uniform procedure. It is possible that two equally competent cost accountants
may arrive at different results from the same information. Keeping this limitation in view, all cost
accounting results can be as mere estimates.

2. Conceptual diversity: 
There are a large number of conventions and flexible factors such as classification of cost into its
elements, issue materials on average or standards price, apportionment of overhead expenses, arbitrary
allocation of joint costs, division of overhead into fixed and various and variable costs, division of cost
into normal and abnormal and controllable and non-controllable and adoption of marginal and standard
costs due to which it becomes difficult to have exact costs. In which a contacts, the reliable of cost
accounting might be low.

3. Costly: 
There are many formalities which are to be observed by a small and medium size concerned due to
which the establishment and running costs are so much that it becomes difficult for their concerned to
afford us cost. Thus it can be used only by big concerned.

4. Ignorance of futuristic situation:

The contribution of cost accounting for heading futures situation has not been much for example, it is
has not evolved so far any tool for heading inflation situation.
5. Lack of double entry systems:
Under cost accounting. A double entry system is not adopted that does not enable to checks the
arithmetic's accuracy of the transaction and locate the errors.

6. Developing stage: 
Cost accounting is to development stage since its principle concepts and conversions are not fully
developed