PROJECT REPORT

ON
BASIC OF COST ACCOUNT
SUBMITTED BY
MISS.MEENAKSHI SEERVI
PROF.TRUPTI KADAM

ASM’S
COLLEGE OF COMMERCE,SCIENCE AND
INFORMATION
TECHNOLOGY,PIMPRI,PUNE-411019
2020-2021
 CONTENT
 INTRODUCTION
 DEFINITION
 OBJECTIVE
 ADVANTAGES
 DISADVANTAGES
 SCOPE
 GENERAL PRINCIPLES
 Introduction
I have chosen the Cost Accounting Topic . In this project, I will explained you what is costing accounting? Definition,advantages
and disadvantages and objectives .First we understood the meaning of cost accounting, we separate cost and accouting . Cost
means cost is the amount of resource given up in exchange for some goods and services. The resources given up are money and
money’s equivalent expressed in monetary units. Accounting means the process or work of keeping financial accounts.
Its means cost accounting is a process of recording, analysing and reporting all of a company’s costs (both variable and fixed)
related to the production of a product.

Cost accounting is the process of collecting information about the costs incurred by a company’s acitivities, assigning selected
costs to products and services and other cost objects, and evaluating the efficiency of cost usage. Cost accounting is mostly
concerned with developing an understanding of where a company earns and loses money, and providing input into decisions to
generate profits in the future.

It is thus the provision of such analysis and classification of expenditure as will enable the total cost of any particular unit of
production or service to be ascertained with reasonable degree of accuracy and at the same time to disclose exactly how such total
cost is constituted (i.e. the value of material used, the amount of labour and other expenses incurred) so as to control and reduce its
cost.
 Definition
 According to Wheldon, “Cost accounting is the application of accounting and costing principles, methods and techniques in the
ascertainment of costs and the analysis of saving/or excess cost incurred as compared with previous experience or with
standards”. Thus, cost accounting relates to the collection, classification, ascertainment of cost and its accounting and control
relating to the various elements of cost.

 According to definition given by CIMA, London “Cost Accounting is the process of accounting for cost from the point at which
expenditure is incurred to the establishment of its ultimate relationship with cost centres and cost units”.

 According to Kohler, “It is that branch of accounting dealing with the classification, recording, allocation, summarisation and
reporting of current and prospective costs”.

 According to Van Sickle, “Cost Accounting is the science of recording and presenting business transactions pertaining to the
production of goods and services, whereby these records become a method of measurement and means of control”.

 According to Shilling, “Cost Accounting as a body of concepts, methods and procedures used to measure, analyse or estimate
the costs, profitability and performance of individual products, departments and other sequences of a company’s operations, for
either internal or external use or both and to report on these questions to the interested parties”.
 OBJECTIVE
1. Ascertainment of cost –
This is the primary objective of cost accounting. For cost ascertainment different techniques and
systems of costing are used under different circumstances.

2. Control of cost –
Cost control aims at improving efficiency by controlling and reducing cost. This objective is becoming
increasingly important because of growing competition.

3. Guide to business policy –

Cost accounting aims at serving the needs of management in conducting the business with utmost
efficiency. Cost data provide guidelines for various managerial decisions like make or buy, selling below cost, utilisation of idle
plant capacity, introduction of a new product, etc.

4. Determination of selling price –

Cost accounting provides cost information on the basis of which selling prices of products or
services may be fixed. In periods of depression, cost accounting guides in deciding the extent to which the selling prices may be
reduced to meet the special situation.
 ADVANTAGES
1. Advises on Make or Buy Decision-
On the basis of cost information, the management can decide whether make or buy a
product in open market. The management can rightly choose the best out of many alternatives. Sometimes, spare capacity can
be used profitably.

2. Cost Control-
Budgets are prepared and standards are fixed under cost accounting system. The expenses are not permitted
beyond the budget amount. The actual performance is compared with standard to find the variation. If there is any variation,
reasons are find out and the management can exercise control. Period to period cost comparison also helps cost control.

3. Help the Trade Union-

Bonus calculation is very easy to the trade union. Reasonable remuneration is also fixed on the basis
of cost accounting information.

4.. Marginal Analysis of Cost-

It is done for facilitating the short-term decisions especially during depression period.

5. Fixation of Responsibility-
Responsibility centers is fixed under cost accounting system. If responsibility is fixed, it
becomes difficult to evade responsibility of performance and leads to effective performance.
6. Helps to Prepare Financial Accounts-
The information like value of closing materials, work in progress and finished goods
are necessary to prepare financial accounts. This information is supplied by the costing records and helps to prepare financial
accounts without any further delay.

 7.Prevention of Frauds-
Introducing cost audit can prevent frauds. If so, correct and reliable data was available from the
costing records which are highly useful to the government, share holders, the creditors and the like.

8. Elimination of Wastes, Losses and Inefficiencies-

A good cost accounting system eliminates wastes, losses and
inefficiencies by fixing standard for everything.
 DISADVANTAGES
1.Lack Of Uniformity-
Cost Accounting has a lack of a uniform procedure. It may bring different results from the same data. So,
it means that cost accounting has ineffective results.

2.Costly-
Cost Accounting is a costly process. It requires many formalities to settle down this process and also needs lots of
paper works which makes it quite costly.

3.Ignores Futuristic Situation-

Cost Accounting ignores the futuristic situation of the product cost. It only records past cost
records whereas management is taking decision regarding the future. Therefore cost data are not very useful.

4.Uses Secondary Data-

Cost Accounting uses secondary data from financial statements for various calculations like standard
cost. It does not include primary data or short term data. That’s why cost accounting does not provide effective results.

5.Only Bring Out The Cost Of Goods-

Cost Accounting is not able to find the financial status of the company. It cannot
determine the operational efficiency of a business and ascertains only the cost of goods. For assessing the financial position,
we need to depend upon financial accounting.
6.Unable To Determine Tax Liability-
Cost Accounting cannot find out the tax liability of the company. It cannot be treated as
a basis for calculating it. Financial accounting is needed for finding out the tax liability. 
 SCOPE OF COST ACCOUNTANCY
1.Costing-
The technique and process of ascertaining the cost

2.Cost accouting-
That branch of accouting dealing with classification, recording, allocation,summarisation and reporting of
current and prospective costs.

3.Cost control techniques-

The guidance and regulation by executive action of operating an undertaking.

4.Budgeting-
An overall blue print of a comprehensive plan of operations and actions expressed in financial terms

5.Cost audit-
The verification of the correctness of cost accounts and of the adherence to the cost accouting plan
 General Principles of Cost Accounting
1. Cause-Effect Relationship-
Cause-effect relationship should be established for each item of cost. Each item of cost
should be related to its cause as minutely as possible and the effect of the same on the various departments should be
ascertained. A cost should be shared only by those units which pass through the departments for which such cost has been
incurred.

2. Charge of Cost Only after its Incurrence-

Unit cost should include only those costs which have been actually
incurred. For example unit cost should not be charged with selling cost while it is still in factory.

3. Past Costs Should not Form Part of Future Costs-

Past costs (which could not be recovered in past) should
not be recovered from future costs as it will not only affect the true results of future period but will also distort
other statements.

4. Exclusion of Abnormal Costs from Cost Accounts-

All costs incurred because of abnormal reasons (like
theft, negligence) should not be taken into consideration while computing the unit cost. If done so, it will distort
the cost figures and mislead management resulting in wrong decisions.
THANK YOU