Cost accounting is one of the important elements of accounting information about the problems of internal managerial control. Financial accounts are unable to meet information needs about the cost structure of a product. The need for cost determination and controls necessitated new set of principles of accounting and thus emerged ‘Cost accounting’ as a specialised branch of accounting. Cost accounting is the process of accounting for costs. It includes the accounting procedures relating to recording of all income and expenditure and preparation of periodical statements and report with the object of ascertaining and controlling costs. Such cost accounting is a good technique for ascertaining profitability and for decision making. The Institute of Cost and Management, London defines cost accounting as “the application of costing and costing principles, methods and techniques to the science, art and practice of cost control and ascertainment of profitability. It includes presentation of information derived therefrom for the purpose of managerial decision making.”
The main objectives of cost accounting are as follows:
1) To ascertain the cost of products and services;
2) To aid in fixation of selling price or quotation for tenders;
3) To analyse and classify the different elements of cost which constitute the total cost;
4) To identify causes of wastage and apply appropriate course of action for checking the wastage;
5) To control costs by analysis and comparisons;
6) To communicate to the management all information relating to costs and facilitate managerial decision-making;
7) To judge the relative efficiency of different departments, branches, products, units, plants and machinery and devise means of increasing their productivity; and
8) To produce cost statements as and when required by the management for an interim review of production, sales and profit or to plan future activities. Thus, the objects of costing establish the fact that it is an essential branch of accounting. It is the key to economy in cost of production and is an essential technique of ensuring efficiency in management.
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