Cost Accounting is the branch of accounting dealing with classification, recording, allocation, summarization, and reporting of current and prospective costs.
Cost Accounting is the process of accounting for cost which begins with the incurrence of cost and ends with the control of cost. It is the formal system of accounting by means of which costs of products, services or activities are ascertained and controlled.
- It is a branch of Knowledge- It is an organized body of knowledge consisting of its own principles, concepts, and conventions. These principles and rules, of course, vary from one industry to another.
- CA is a Science- Cost Accounting is a science as it is a body of systematic knowledge relating not only cost accounting but relating to a wide variety of subjects such as office practice, and procedure, data processing, production and material control.
- It is an Art- In the sense that it requires the ability and skill on the part of cost accountant in applying the principles, methods, and techniques of cost accountancy to various management problems.
- CA is a Profession- It becomes one of the important professions which have become more challenging. A large number of students have enrolled in the institutes to obtain costing degrees and memberships for earning their livelihood.
Scope of Cost Accounting
There are four main scopes of Cost Accounting:
- Cost Ascertainment: It deals with the collection and analysis of expenses, the measurement of the production of the different products at the different stages of manufacturing and the linking up of production with the expenses incurred in the undertaking.
- Aids to Management: It enables a business not only to ascertain with various jobs, goods and services have cost to the enterprise but also what they have cost in it. It helps management in determining policies and formulating plans for profitable operations are also a part of cost accounting.
- Proper Matching of Cost with Revenue: It prepares monthly or quarterly statements to reflect the cost and income data identified with the sale of that period.
- Cost Control: Cost Control is the guidance and regulation by executive action of the costs of operating an undertaking. The cost can be controlled by standard costing, budgetary control, proper presentation and reporting of cost data and cost audit.
- Analysis and Ascertainment of Costs: The main aim of costing is to ascertain the cost of each product, process, department, service or operation. It involves further study, analysis, and classification of costs such as prime cost, production cost, work cost, etc.
- Determining of Selling Price: The selling price of a product depends upon its total cost with a margin of some profit which the businessman wants to make depending upon the inner play of factors of demand and supply. It provides detailed information about the composition of the total cost for determining the selling price.
- Cost Control: It measures the efficiency of the organization or of the cost centers, the various operations involved in the manufacture of products are to carefully studied. The variances arising out of the comparison so made tell the tale whether the cost is within the control or not.
- Ascertainment of Profitability: If a new product is introduced for manufacturing, one generally tries to find our the profits that can be earned from that product. The same applies to the activity or process being carried out presently in the factory.
- Cost Reduction: The achievement of a real and permanent reduction in the unit costs of goods manufacture without impairing their suitability for the use intended.