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Concepts and Scope of Cost Accounting, Objectives & Limitations of Cost Accounting
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>> Concepts and Scope of Cost Accounting, Objectives & Limitations of Cost Accounting
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Cost is one of the basic factors involved in production and cost is essential for fixing the price as well as for ascertaining the margin of profit. By cost determination, a check can be made on the controlling of wastages etc. The accounting which studies the various aspects of cost is termed as cost accounting. We at
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Meaning and scope of cost accounting
The process of determining and accumulating the cost of any product or activity is called cost accounting. Cost accounting can also be termed as the process used for the incurrence and control of costs. The reach of the subject also includes classification, analysis and interpretation of cost within its sphere. It can be also said to be the subject which informs about the ascertainment and control of costs of products and services. It measures the operating efficiency of a given enterprise. Cost accounting is the accounting for cost whose main am is to provide cost data, reports and statements for managerial decision making purposes. rofitability of activities which are carried out or planned”
Costing is comprised of the techniques and processes used for ascertaining costs. The word technique used here refers to principles that are applied to ascertaining cost of jobs, products, services and processes. Processes are the day today routines which are carried out for determining costs, in the methods of costing which are adopted by any business enterprise.
Scope of cost accounting
The scope of cost accounting goes beyond than that of costing. Some functional activities which are included within the cost accounting scope are:- tual cost which vary from the budgeted costs and also undertakes the process of fixation of responsibility for any cost increases which have occurred.
5. Cost comparisons- the concept of cost accounting also includes the comparisons done between cost obtained form alternative sources of actions, for example technology use for production, cost involved in manufacturing of different products and also the cost variation of the same product over a given time period.
6. Cost control- the cost information is also utilized in cost accounting for exercising control. A detailed examination of each cost is done in the light of the benefits which are derived from the incurrence’s of various costs. The costs analyzed help to decide the satisfactory levels of costs against the standard which are set in advance.
Cost reports- presentation of the cost in the form of report is the ultimate function and objective of cost accounting. The reports thus generated are used by the management of the firm at various different levels. The cost reports generated also forms the basis for further planning and control, management decision making and the performance appraisals.
Objectives of cost accounting:-
1. Determining the selling price.
2. Controlling of the costs.
3. Providing information necessary for decision making.
4. Assertion of costing profits.
5. To facilitate the preparation of financial and other statements.
Importance of cost accounting
1. Helps the management in various processes including decision making.
2. Helps in the ascertainment of costs.
3. Helps in fixation of prices.
4. Helps in reducing the costs.
5. Helps in eliminating wastage.
6. Helps in identification and removal of unprofitable activities.
7. Provides basis for checking the accuracy of financial accounts.
8. Helps in controlling the inventory.
9. Helps in estimations.
10. Helps to fix the selling prices.
Limitations of cost accounting-
1. An expensive process for analysis, absorption and allocation of overheads requiring considerable amount of additional work.
2. Differences are found between the results of cost accounts and financial accounts.
3. It is sometimes unnecessary as it involves duplication of work.
4. The costing system in itself does not control costs. An alert and efficient management can control costs without the help of cost accounting. Hence it is unnecessary.
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