Introduction to Cost and Management Accounting 1.1-1.

12
Cost Accounting
1.2
Cost Accounting and Financial Accounting Comparison 1.3
Advantages of Cost Accounting
1.4
Objections against Cost Accounting 1.5
Management Accounting 1.6
Scope of Management Accounting 1.7
Functions (or Objectives) of Management Accounting 1.8
Tools and Techniques Used in Management Accountinng
1.9
Financial Accounting and Management Accounting-
Comparison 1.9
Cost Accounting and Management Accounting Comparison 1.11
Examination Questions 1.12
 CHAPTER
|Introduction to Cost and
Management Accounting
Chapter Outline
Financial Accounting; Cost Accounting; Comparision of Cost and Financial
Advantages and Limitations of Cost Accounting; Meaning of Management Accounting Accounting;
and its
relation with Financial Accounting and Cost Accounting; Objectives of
Tools and Techniques used; Comparison of Management
Management Accournting;
Accounting with Financial Accounting
and Cost Accounting, Examination Questions

Accounting serves the purpose of providing financial information relating to activities of a

business. Such information is provided to shareholders, managers, creditors, debentureholders,
bankers,
tax authorities and others. Broadly speaking, on the basis of type of accounting information and the
purpose for which such information is used, accounting may be divided into three categories:

Accounting

Financial Cost Management

Accounting Accounting Accounting
Financial Accounting
Financial accounting is mainly concerned with recording business transactions in the books of
account for the purpose of presenting final accounts to management, shareholders and tax authornties,
etc. It is defined as "the art of recording,
classifying_arnd
summarising_in a signif+cant manner and in
terms of money. transactions and events which-are-in partatleast, ofa financial character and
mterpreting the results thereof"* The infomation supplied by financial accounting is summarised in
thefoltowing two statements at the end of the accounting period, ger rally one year.
(a) Profit and Loss Account showing the net profit or loss during the period.
6) Balance Sheet showing the financial position of the firm at a point of time.
Theobjective of financialaccountingis-to-present a true and fair view of company'sincomeand
financial position at regular intervalsofoneyear.

"American Institute of Certified Public Accountants (AICPA)

1.1
 1.2 Cost and Management Accouni
ti
COST ACcOUNTING

a recent development. In f .
with financial accounting, cost accounting is relatively
Ompared but now it is regarded as a system in its
COSt accounting started as a branch of financial accounting,
has acquired in the modern age is because of HL
OWn
nght. The vital importance that cost accounting information supplied by financial accountinothe
growth oft complexities in modern industry. relate to past activity. Cost accounting is not restricti
Financial
above
he form of financial statements stated and expected uture cost of produe
to It is concermed with the ascertainment of past, present ucts
past.
manufactured or services suppied.
meet the needs of management. Profit and Loss I.
accounting has primarily developed to
Cost
the financial accountant. But mode
ACcount and Balance Sheet are presented to management by detn
financial statements, C
information than supplied by these Cost
management needs much more detailed for efficient performan
to various levels of management
accounting provides detailed cost information as a tool of management for
of their functions. The information supplied by cost accounting acts
to the profitability of business.
making optimum use of scarce resources and ultimately add used interchangeahl
Definition of Costing. The terms 'costing' and cost accounting are often
of UK has defined costing as, "the ter
The Chartered Institute of Management Accountants (CIMA)
Wheldon* has defined costing as, "the classifying, recordina
niques and processes of ascertaining costs'. the relation ofthese costs
ng
determination of costs,
andappropriate allocation of expenditure for the "Thus, costing simply means cost finding by am S to
sales value and the ascertainment of profitability.
and rules which are used for determining:
anty
process or technique. It consists of principles
(a) the cost of manufacturing a product; e.g., motor car, furniture, chemical, steel, paper, etc. and

the cost of providing a service; e.g., electricity, transport, education, etc.

(b)
Cost Accounting. Cost accounting is a formal system of accounting for costs in the books of
account by means of which costs of products and services are ascertained and controlled. An authoritative
definition of cost accounting has been given by CIMA of UK as follows: "Costaccounting is the proces
ofoccounting for costsfromthe point at which expenditure is incured orcommittedtothe establishment
of its ultimate relationship_with cost centres and cost units. In its widest usage, it embraces the
preparation of statistical data, the application ofcost control methods and ascertainment of profitability
of activities carried out or planned."
Costing and Cost Accounting--Difference. Though the terms 'costing' and 'cost accounting' ar
interchangeably used, there is a difference between the two. Costing is 'simply determining costs by
usingany method like arnthmetic process, memorandum statements,etc. Cost Accounting, on the other
hand, denotes the formal accounting mechanism by means of which costs are ascertainedby recording
them in the books of accounts. In simple words, costing means finding out the cost of product or
service by any technique or method, cost accounting means costing using double entry system.

Objectives and Functions of Cost Accounting

The main objectives of cost accounting are as follows:
1. Ascertainment of cost. This is the
primary objective of cost accounting. For cost ascertainmen
different techniques and systems of costing are used under different circumstances.
2. Control of cost. Cost accounting aims at
improving efficiency by controling and reducing co
This objective is becoming increasingly important because of
growing competition.
3. Guide to business policy. Cost
accounting aims at serving the needs of managemen
conducting the business with utmost efficiency. Cost data provide
guidelines for various managel
Cost Accounting and Costing Methods-- Wheldon.
utroduction to Cost and
Management Accounting 1.3

decisions like make or buy, selling below cost, utilisation of idle

new product, etc. plant capacity, introduction of a

4.Determination of selling price. Cost

accounting provides cost estimation on the basis of which
selling prices of products or services may be fixed. In periods of
deciding the extent to which the selling prices may be reduced todepression, cost accounting guides in
meet the situation.
5. Measuring and improving performance. Cost accounting
and analysing cost data and then
measures eficiency by classifying
suggest various steps in improving performance that
is increased.
so
profitability
In order to realise these objectives, the data
provided by cost accounting may have to be re
classified, re-organised and supplemented by other relevant business data from outside the formal cost
accounting system.
COST ACcoUNTING AND FINANCIAL ACCOUNTING
COMPARISON
Both cost accounting and financial
accounting are concerned with systematic Irecording and
presen-
tation of financial data. The two systems rest on the same principles concerning debit and credit and
have the same sources of recording the transactions. But cost accounting is much more detailed than
financial accounting. This is because in financial accounting profit or loss is ascertained for the
business as a whole whereas in cost accounting detailed cost and profit data for various parts of
business ike departments. products, etc., are shown.
Differences between Cost Accounting and Financial Accounting are explained below:

Basis Financial Accounting Cost Accounting

1.Purpose The main purpose of Financial accounting |The main purpose of cost
|is to prepare Profit and Loss Account and accounting is to provide detailed
Balance Sheet for reporting to owners or cost information to management,
shareholders and other outside agencies, |i.e., internal users.
i,e., external users.
2. Statutory require- These accounts are obligatory to be pre- | Maintenance of these accounts is
ments pared according to the legal requirements voluntary except in certain
of Companies Act and Income Tax Act. industries where it has been made
obligatory to keep cost records
under the Companies Act.
3.Analysis of cost and |Financial accounts reveal the profit orloss Cost accounts show the detailed
profit of the business as a whole for a particular cost and profit data for each
period. It does not show the figures of |productline, department, process,
cost and profit for individual products, de- etc.
partments and processes.
4. Frequency of Financial reports (Profit and Loss Account Cost reporting is a continuous
reporting and Balance Sheet) are prepared periodi- process and may be daily, weekly,
cally, usually on an annual basis. monthly, etc.

5. Control aspect
It lays emphasis on the recording of fi- |It provides for a detailed system
nancial transactions and does not attach |of controls with the help of
importance to control aspect. certain special techniques like
standard costing and budgetary
control.
 Managenent Accountino
Cost and
1.4
Cost Accounting
Financial Accounting
Basis not only with
is c o n c e r n e d
exclusively
his-|It
with
costs but also with pre
6. Historical and pre It is concerned almost nature of fi- |historical
historical costs. This is becausase
determined costs torical records. The under-| determined
can be easily does not end with
nancial accounting
of the purposes
for |cost accounting in the past.
stood in the
context
what has happened
and policies
which it was designed. It extends to plans
performance in the
to improve
future.
accounting has varied forms
Financial accounting has
a single
uniform | Cost
.
format ofpresenting| presenting cost information
information, i.e., of
information format of presenting which are tailored to meet the
Loss Account, Balance Sheet and |
and
Profit
Cash Flow Statement.
needs of management and thus
lacks a uniform format.

external | Cost accounting not only records

Financial accounting records only but also
8. Types of transactions receipts, external
transactions
transactions like sales, purchases,
recorded inter-departmental
does not record internal or
etc., with outside parties. It like issue of materials
internal transactions. transactions
by store-keeper to production
departments.

9. Types of statements |Financial accounting prepares general pur-| Cost accounting generates special
pose statements like Profit and Loss Ac-purpose statements and reports
prepared
count and Balance Sheet. That is to say | like Report on Loss of Materials,
that finandial accounting must produce in- | Idle Time Report, Variance Report,
formation that is used by many classes of etc. Cost accounting identifies the
people, none of whom have explicitly | user, discusses his problems and
defined informational needs. needs and provides tailored
|information.
ADVANTAGES OF COST ACCOUNTING
Financial accounting has certain limitations which have
given ise to cost accounting. In other
words, the emergence of cost accounting is because of the limitations of
financial
accounting has many advantages but the extent of the advantages obtained will accounting. the
Cost
efficiency with which cost system is installed and also the extent to depend upon
to acceptthe system.
which the management is prepared
The principal advantages of cost accounting are as follows:
Advantages to
Management
1. Reveals elles
profitable and unprofitäble activities. A system of cost
and unprofitable
activities. On
this information, accounting reveals profitable
wastages and management
inefficiencies occurring in any form such as may take steps to reduce or eliminate
spoilage of materials, etc. idle time, under-utilisation
of plant capacity,
2. Helps in cost control.
Cost
accounting helps in controlling costs with
standard costing and budgetary control.
special techniques like
Iutroduction to Cost and
Management Accounting 1.5

3. Helps in decision
making. It supplies suitable cost data and other related information for
managerial decision-making, such as introduction of a new product line, determining export price of
products, make or buy, etc.
4. Guides in fixing selling prices. Cost is one of the most important factors to be considered
while fixing prices. A system of cost accounting guides the management in the fixation of seling
prices, particularly dunng depression period when prices may have to be fixed below cost.
5. Helps in inventory control.
Perpetual inventory system, which is an integral part of cost
accounting. helps in the preparation of interim profit and loss account. Other inventory control
techniques like ABC analysis, level setting, etc., are also used in cost accounting.
6. Aids in formulating policies. Costing provides such information as enables the management to
formulate production and pricing policies and preparing estimates of contracts and tenders.
7. Helps in cost reduction. It helps in the introduction of a cost reduction programme and
finding out new and improved ways to reduce costs.
8. Reveals idle capacity. A concern may not be working to full capacity due to reasons such as
shortage of demand, machine breakdown or other bottlenecks in production. A cost accounting system
can easily work out the cost of idle capacity so that management may take immediate steps to improve
the position.
9. Checks the accuracy of financial accounts. Cost accounting provides a reliable check on
the accuracy of financial accounts with the help of reconciliation between the two at the end of the
accounting period.
10. Prevents frauds and manipulation. Cost audit system, which is a part of cost accountancy,
helps in preventing manipulation and frauds and thus reliable cost data can be furnished to management
and others.

Advantages to Workers
Workers are benefited by introduction of incentive plans which is an integral part of a cost system.
This results not only in higher productivity but also higher earnings for workers.

Advantages to Society
An efficient cost system is bound to lower the cost of production, the benefits of which are passed
on to the public at large in the form of lower prices of products and services.

Advantages to Government Agencies and Others

A cost system produces ready figures for use by government, wage tribunals, trade unions, etc., for
use in problems like price fixing, wage level fixation, settlement of industrial disputes, etc.

OBJECTIONS AGAINST COST ACccOUNTING

Despite the fact that the development of cost accounting is one of the most significant steps to
improve performance, certain objections are raised against its introduction. These are as follows
1. It is unnecessary. It is argued that maintenance of cost records is not necessary and involves
duplication of work. It is based on the premise that a good number of concerns are functioning
prosperously without any system of costing. This may be true, but in the present world of competition,
to conduct a business with utmost efficiency, the management needs to know detailed cost information
for its decision-making. Only a cost accounting system can serve this need of the management and thus
help in the more efficient conduct of a business.
 1.6
Cost and Managenent Accountino

t 1s
expensive. It is pointed out that installation of a costing system is quite expensive which
a concerns can afford. It is also argued that installation of the system will involve additional
expenditure which will lead to a diminution of profits. In this respect, it may be said that a costina
ystem should be treated as an investment and the benefits derived from the system must exceed the
dOunt spent on it. It should not prove a burden on the finances of the company.
3. It is
inapplicable. Another argument sometimes put forward is that modern methods of costing
are not applicable to many types of industry. This plea is not very apt. The fault lies in an attempt to
ntroduce a readymade costing system in a firm. A costing system must be specially designed to meet
the needs of a business. Only then the system will work successfully and achieve the objectives for
which it is introduced. In fact, applications of costing are very ide. All types of activities, manufacturing
and
4.
non-manufacturing,should consider the use of cost accounting.
a failure. The failure of a costing system in
It is some concerns is quoted as an
argument
against its introduction in other undertakings. This is a very fallacious argument. If a system does not
produce the desired results, it is wrong to jump to the conclusion that the system is at fault. The
reasons for its failure should be probed. In order to make the system a success, the utility of the
system should be explained and the cooperation of the employees should be sought by convincing
them that the system is for the betterment of
all
MANAGEMENT ACCOUNTING
The term 'management accounting' is the modern concept of accounts as a tool of
is broad term and is concernmed with all such accounting information that is useful to
a
management. It
management. In
simple words, the term management accounting is applied to the provision of accounting information
for management
activities such as planning, controlling and decision-making, etc. Thus, "any form of
accounting which enables a business to be conducted more efficiently"* may be regarded as
accounting. Management accounting information can help managers identify management
and evaluate performance. In USA, the problems, solve problems
management accountant is called the 'Controller or 'Financial
Controller.

Meaning and Definition

In the words of R.
Anthony, "Management accounting is concerned with
that is useful to management." acounting information
According to National Association of Accountants (USA),
of identification, measurement, accumulation, management accounting is "the process
analysis, preparation
information used by management to plan. evaluate and control withinand communication of financial
appropriate use and accountability for its resources. the organisation and to assure
The Chartered Institute of
tive and comprehensive definitionManagement
as follows:
Accountants (CIMA) of UK has
given a very authonta-
"Management accounting is an Integral part of
and interpreting
information used for management concerned with identifying,
-

presenting
(i) formulating strategy:
(iü) planning and controlling activities;
(ii) decision-making:
(iv) optimising the use of resources;
(v) disclosure to shareholders and
others external to the
The Institute of Chartered entity:
Accountants of England
Introduction to Cost and Management Accounting 1.7

(vi) disclosure to employees; and

(vii) safeguarding assets."
The Institute of Cost Accountants of India (ICAI) has defined management accounting as "a
system of collection and presentation of relevant economic information relating to an enterprise for
planning, controling and decision making. "

These definitions make it clear that management accounting plays a vital role in providing the
necessary information to managers in performing their functions of planning, controlling, organising
and decision-making.
Relationship of Management Accounting to Cost Accounting and Financial Accounting9
The three types of accounting, i.e., financial accounting,
accounting and management accounting9
cost
are closely linked. The management accounting uses the principles and practices not only of cost
accounting but also of financial accounting. Cost accounting is a more detailed application of financial
accounting andmanagement accounting goes a step further. Fig. 1.1 shows the evolution of management
accounting and its relationship to cost accounting and financial accounting.

PREPARING
PROFIT&
LOSS ACCOUNT FINANCIAL
AND ACCOUNTING
BALANCE SHEET

ANALYSING COST
FOR CONTROL AND COST
MAXIMISING ACCOUNTING
EFFICIENCY

ASSISTING
MANAGEMENT
MANAGEMENT
FOR PLANNING,
ACCOUNTING
DECISION MAKING
AND CONTROL

Fig. 1.1. Relationship of Financial, Cost and Management Accounting.

SCøPE OF MANAGEMENT ACCOUNTING

and cost
Management accounting has a very wide scope. It includes not only financial accounting
tax accounting, office
accounting but also all types of internal financial controls, internal audit,
Services,cost control and other methods and control procedures. Thus scope of management accounting,
inter alia includes the following:
1. Financial accounting. Financial accounting provides basic historical data which helps management
to forecast and plan its financial activities for the future period. Thus for an effective and successful
management accounting, there should be a proper and well designed financial accounting system.
 1.8 Cost and Management Acco1ti.
ting
like standard costing and budgeta
Cost accounting. Many of the techniques of cost control like marginal costing, CVP analysis a
etary
r o l and techniques of profit planning and decision-making
dfferential cost analysis are used by the management accounting.
3. Budgeting and forecasting. In order to plan business activities for the future, forecasting
udgeting
ana

budgeting play aa very significant role. Forecasting helps in the preparation of budgets and buda
helps management accountant in exercising budgetary control.
4. Tax planning. In order to take advantage of various provisions of tax laws, managemens
ent
accountant has to depend upon tax accounting and planning to minimise its tax labilities and say
save
more funds for the business.
5. Reporting to management. For effective and timely decisions, there should be a system of
prompt and intelligent reporting to management. Both routine and special reports are prepared fo
submission to top management, middle order management and operating level management depending
on their requirements.
6. Cost control procedures. Any system of management accounting is incomplete without effective
cost control procedures like inventory control, labour control, overhead control, budgetary control, ete
7. Statistical tools. Various tools of analysing and presenting statistical data like graphs, tables,
charts, et., are used in preparing reports for use by the management.
8. Internal control and internal audit. Management accountant heavily depends on internal
financial controls like internal audit and intemal check to plug loop holes in the financial system of
the concern.
9. Financial analysis and interpretation.
Management accountant employs various techniques to
analyse and interpret financial data to make it understandable and useable to the management. Such
analysis helps management to achieve objectives of management in a more efficient manner.
10. Office services.
Management accountant is expected to maintain and control office routines
and procedures like filing, copying, communicating, electronic data pròcessing and other allied services.
FUNCTIONS (OR OBJECTIVES) OF MANAGEMENT
ACcOUNTING
Main functions of management
accounting are as follows:
1. Planning. Information and data
forecast and prepare short-term and
provided by management accounting helps management to

formulate corporate strategy. For this

long-term plans for the future activities of the business and
standard costing,
purpose management accounting techniques like budgeting
marginal costing, probability, correlation and regression, etc., are used.
2.
Coordinating. Management accounting techniques of planning also
business activities. For help in coordinating various
example, while preparing budgets for various departments
purchases, etc., there should be full coordination so that there is no like production, sales,
reporting, management accounting helps in contradiction. By proper financial
accomplishing the set goals. achieving coordination in various business activities and
3.
Controlling. Controling is a very important function of
helps in
controlling performance management and management accounting
control ratios, intermal audit, etc. by control techniques such as standard costing,
budgetary control
4. Communication..
levels of management which Management accounting system prepares
show the reports for presentation to vanou
communication in the form of reports to variousperformance of various sections of the business. Sucn
control on various business activities and levels of
managemént helps to exercise effective
successfully running the business.
 Introduction to Cost and Management Accounting 1.9

5. Financial analysis and interpretation. In order to make accounting data easily understand-
able, the management accounting offers various techniques of analysing, interpreting and presenting
this data in non-accounting language so that every one in the organisation understands it. Ratio
analysis, cash flow and funds flow statements, trend analysis, etc., are some of the management
accounting techniques which may be used for financial analysis and interpretation.
6. Qualitative information. Apart from monetary and quantitative data, management accounting
provides qualitative information which helps in taking better decisions. Quality of goods, customers
P

and employees, legal judgements, opinion polls, logic, etc., are some of the examples of qualitative
information supplied and used by the management accounting system for better management.
7. Tax policies. Management accounting system is responsible for tax policies and procedures and
supervises and coordinates the reports prepared by various authorities.
8. Decision-making. Correct decision-making is crucial to the success of a business. Management
accounting has certain special techniques which help management in short-term and long-term decisions.
For example, techniques like marginal costing, diferential costing, discounted cash flow, etc., help in
decisions such as pricing of products, make or buy, discontinuance of a product line, capital
expenditure, etc.

TOOLS AND TECHNIQUES USED IN MANAGEMENT ACCOUNTING

Management accounting uses a number of tools and techniques to help management in achieving
business goals. Some of its important tools and techniques are as follows:
1. Budgeting
2. Standard costing and variance analysis.
3. Marginal costing and cost volume profit analysis.
4. Ratio analysis.
5. Comparative financial statements.
6. Differential cost analysis.
7. Funds flow statements.
8. Cash flow statement.
9. Responsibility accounting.
10. Accounting for price level changes.
11. Statistical and graphical techniques.
12. Discounted cash flow.
13. Cost benefit analysis.
14. Learning curve.
15. Value analysis.
Based Costing (ABC), etc.
16. Activity

FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING- COMPARISON

Financial accounting and management accounting
are two major sub-systems of accounting infor-
revenues and expenses, assets and
liabilities and
mation system. Both are concerned with the two
statements. But the major differences between
cash flows. Both therefore involve financial
The main points of difference between the two are as
anse because serve different audiences.
they
follows:
 1.10 Cost and Management Accountno
ting
Basis Financial Accounting Management Accounting
External and internal Financial accounting information is mainly Management accounting information is
users intended for external users like investors, mainly meant for internal user.
1.
shareholders, creditors Govt. authorities, | management.

2. Accounting method
etc.
I t isbased on double entry system for re- It is not based on double entry systen
tem
cording business transactions
3. Statutory Under company law and tax laws, financial | Management accounting is optional
requirements accounting is obligatory to satisfy various though its utility makes it highl
desireable to adopt it.
ghly
statutory provisions.
4 Analysis of cost and Financial accounting shows the profit/loss Management accounting provides de.
profit of the business as a whole. It does not show tailed information about individual
the cost and profit for individual products, | products, plants, departments or an
processes or departments, etc. other responsibility centre.

5. Past and future data |It is concerned with recording transactions| It is future oriented and
concentrates
which have already taken place, i.e., it rep-| on what is likely to happen in future
Tesents past or historical records. though it may use past data for future
projections.
6. Periodic and
Financial reports, i.e. Profit & Loss Account | Management accounting reports are pre-
continuous reporting and Balance Sheet are prepared usualy on pared frequently, i.e., these
a year to year basis. may be
monthly, weekly or even daily, depend-
ing on managerial requirements.
7. Accounting standards Companies are required to prepare financial |
Management accounting is not bound
accounts according to accounting standards by
accounting standards.It may use any
issued by the Institute of Chartered Account-I practice which generates useful infor-
ants of India.
mation to management.
8. Types of statements |Financial accounting
prepared prepares general| Inmanagement accounting specific pur-
purpose statements Profit and Loss Account pose reports are prepared, e.g.. pertom-
and Balance Sheet which are used by |
external users.
ance report of sales manager or any
other department
manager which are
used by top level
management.
9. Publication and audit
|Financial statements, i.e., P8L A/c and Bal-|
ance Sheet are published for Management accounting statements are
general public | for internal use and thus neither pub-
use and also sent to shareholders.These are | lished
required to be audited by the Chartered Ac- are for general public use nor these
countants. required be audited by Chartered
to
Accountants.
10. Monetary and
non-monetary Financial accounting provides information
in terms of money only. Management accounting may
appyor
measurements monetary or non-monetary units
measurement. For example information
may be expressed in terms of or units
of quantity, machine hours, labour
hours, etcC.
ntroduction to Cost and Management Accounting 1.11

coST ACcOUNTING AND MANAGEMENT ACCOUNTING - cOMPARISON

An examination of the meaning and definitions of cost accounting and management accounting
indicates that the distinction between the two is quite vague. Some writers even consider these two
areas as synonymous while others distinguish between the two. Horngren, a renowned author on the
ubject, has gone to the extent of saying, "Modern cost accounting is often called management accounting.
Why ? Because cost accountants look at their organisation through manager's eyes." Thus managerial
aSDects of cost accounting are inseparable from management accounting. One point on which all agree
is that these two types of accounting do not have clear cut teritornal boundaries. However, distinction
hetween cost accounting and management accounting may be made on the following points:

Basis Cost Accounting Management Accounting

1. Scope Scope of cost accounting is limited to| Scope of management accounting is broader
providing cost information for managerial than that of cost accounting as it provides
uses. all types of infoImation, i.e.. cost
accounting as well as financial accounting
information for managerial uses.
Main emphasis is on cost ascertainment and Main emphasis is on planning, controllng
2. Emphasis
cost control to ensure maximum profit. and decision-making to maximise profit.
also all these
3. Techniques Various techniques used by cost accounting | Management accounting uses

include standard costing and variance techniques used in cost accounting butin
employed
analysis, marginal costing and cost volume | addition it also uses techniques like ratio
control, uniform | analysis, funds flow statement, statistical
profit analysis, budgetary
costing and inter-firm comparison, etc. analysis, operations Iesearch and certain
techniques from various branches of
knowledge like mathematics, economics,
etc., whichsoever can help management in
its tasks.
due
4. Evolution Evolution of cost accounting is mainly due | Evolution ofmanagement accounting is
to the limitations of financial accounting. accounting. In
to the limitations of cost
fact, management accounting is an
extension of the managerial aspects of cost
accounting.
is purely voluntary
5. Statutory Maintenance of cost records has been made | Management accounting
its use depends upon its utility to
requirements compulsory in selected industries as notified and
the Govt. from time to time. management.
by
is based data derived from cost
6. Data base It is based on data derived from financial | It on

accounting, financial accounting and other

accounts.
sources.

cost Management accountant is generally placed

7. Status in In the organisational set up,
in at a higher level of hierarchy than the
cost
Organisation accountant is placed at a lower level
accountant. | accountant.
hierarchy than the management
accounting cannot be installed
8. Installation Cost accounting system can be installed | Management without a proper system of cost accounting.
without management accounting.
 I12 Cost and
Managennent Acc
EXAMINATION QUESTIONSs
Accountin
Short Answer Questions
1. Detine cost
accounting.
2. What are the objectives of
costing ?
3. Define management
4. State in brief
accounting.
any three points of difterence between cost
5. What is the difference
between costing and cost accounting and management accos
6. State three
7. What are the
advantages of cost accounting to
objections
against cost
acounting
management.
?
accountinq.
8. Name any five accounting ?
9. State any techniques used in
management accounting.
three objectives
of management
10. What is the accounting.
relationship between cost accounting and
management accounting ?
Essay Type Questions
1. "Cost
2. Cost
accounting has come to be an essential tool
accounting is an aid to management." of
3. Explain the management." Comment.
Substantiate.
distinction between cost
4. Discuss the limitations of
cost accounting and management
5. Financial accounting treats accounting.
costs
accounting.
Discuss with a suitable very broadly while cost
6. What are the example. accounting does this in much
7. "A good objections to the
introduction of a greater detail
in
system
manufacture." Discuss. serves as a means of costing system?
of costing
control
over
8. Define cost expenditure and helps
What are theaccounting and
tosecure
9. explain
functions of a cost its
objectives. economy
10.
Money spent on
11. What does installing a costingaccountant
system
in an
industrial
is not an organisation ?
12. It is management
said, "Cost expect of a
costing expense but
into profits, accounting is a system ?
an
investment. Give your views.
speeds up activities andsystem of
foresight and not
13. "A costing system eliminates postmortem examination; it turns
only a small part ofthat simply
its mission."
records wastes."
costs for the Discuss in detail this losse
4.
"Major policy decisions in Discuss. What otherpurpose of fixing sale statement.
information to management.business are based on cost functions does costingprices has accompished
factors." Comment on perform ?
the possible uses of
cOs