COST ACCOUNTING

3. Objectives
1. Definition and Meaning of Cost Accounting
2. Meaning of Cost
3. Objectives of Cost Accounting
4. Cost Terminology
5. Advantages of Cost Accounting
6. Limitations of Cost Accounting

4. COST ACCOUNTING
- MEANING
Cost accounting is concerned with recording,
classifying and summarizing costs for determination
of costs of products or services, planning, controlling
and reducing such costs and furnishing of information
to management for decision making.

5. Definition
 COST ACCOUNTING: The Institute of Cost and Management
Accountant, England (ICMA) has defined Cost Accounting as –
“the process of accounting for the costs from the point at which
expenditure incurred, to the establishment of its ultimate
relationship with cost centers and cost units. In its widest sense,
it embraces the preparation of statistical data, the application of
cost control methods and the ascertainment of the profitability of
activities carried out or planned”.
Cost Accounting = Costing + Cost Reporting + Cost Control.
Accounting for determination and control of costs.

6. COST – MEANING
Cost means the amount of expenditure
(actual or notional) incurred on, or
attributable to, a given thing.

7. OBJECTIVES OF COST
ACCOUNTING
 Ascertainment of costs
 Estimation of costs
 Cost control
 Cost reduction
 Determining selling price
 Facilitating preparation of financial and other
statement

8. COST TERMINOLOGY:
 COST: Cost means the amount of expenditure incurred on a particular
thing.
 COSTING: Costing means the process of ascertainment of costs.
 COST ACCOUNTING: The application of cost control methods and the
ascertainment of the profitability of activities carried out or planned”.
 COST CONTROL: Cost control means the control of costs by
management. Following are the aspects or stages of cost control.
 JOB COSTING: It helps in finding out the cost of production of every
order and thus helps in ascertaining profit or loss made out on its
execution. The management can judge the profitability of each job and
decide its future courses of action.
 BATCH COSTING: Batch costing production is done in batches and each
batch consists of a number of units, the determination of optimum quantity
to constitute an economical batch is all the more important.

9. Advantages
• Classification and Subdivision of Costs
• Adequacy or Inadequacy of Selling Prices
• Disclosure of profitable Products
• Control of Material and Supplies
• Maintenance of Proper Investment in Inventories
• Correct Valuation of Inventories
• Control of Labour Cost
• Budgeting
• Controllable and Uncontrollable Cost
• Reliable Check on General Accounting

10. Disadvantages
• Based on estimates
• Lack of uniformity
• Many conventions
• Expensive
• Result requires reconciliation
• Dependent
• Does not include all items of expense and
income
• Not an exact science

11. Home Assignment
1. What is Cost Accounting? How it is different from
Management Accounting?
2. Explain the various types of Cost?