It is argued that the adoption of costing system failed to produce the desired results in many cases and, therefore, the system is defective. Classification of Cost. (1) Ascertainment and analysis of cost and income by product, function and responsibility. Objective … To find out costing profit or loss by identifying with revenues the costs of those products or services by selling which the revenues have resulted. In spite of this, there was slow development of cost accounting during the 19th century.
To lessen the chances of any mistake or error, cost ledgers and cost control accounts, as far as possible, should be maintained on double entry principles. Ascertainment of Profitability. The Banks or financial institutions are interested to know the accurate financial position of business concern for sanctioning loans.On the other hand, the government or other authorities may also ask about the financial position of business concern for various reasons.In these cases, the accounts maintained in a disciplined way become easily acceptable to the interested institutions or authorities.The object of accounts maintained in an acceptable way is to create higher values among individuals and organizations and thereby creating awareness in preventing money defalcation, misappropriation of fund and cost control by ensuring transparency and accountability.As all kinds of business organizations have to abide by some legal bindings and prohibitions, they are to maintain their accounts accurately.Partnership law, income tax law, and company law, etc. A number of daily cash receipts, payments, cash in hand and cash at the bank can be known from this book.Fraud, forgery, and misappropriation of money are reduced by keeping cash book scientifically and accurately.For running a business successfully a businessman is to acquire various assets like land, building, machinery, etc.He is to face various debts and liabilities like accounts payable, notes payable, loan, bank overdraft, etc. But in many cases some methods of costing can always be devised to suit the requirements of the business. Learn, Explain Cost Accounting: Objectives, Nature, and Scope. 4.
It may be stated in this connection that a costing system must be a profitable investment and should produce benefits commensurate with the expenditure incurred on the system. The advantage of taking loans due to the insufficiency of capital, borrowing capital from outsiders is felt necessary to run a business.Loan givers are not willing to give a loan without knowing the financial position of a business. It involves the presentation of right information to the right person at the right time so that it may be helpful to management for planning, evaluation of performance, control and decision making. Unit cost should include only those costs which have been actually incurred. It has been argued that costing is of recent origin and that industries prospered in the past and are still prospering without the aid of costing and, therefore, expenditure incurred in installing a costing system would be an unnecessary expenditure. Overheads (i.e. The followings are the objectives of cost accounting. With the advent of the factory system, necessity for accurate cost information was felt to bring efficiency in production. Cause-effect relationship should be established for each item of cost. Providing basis for Business Policies: (a) So to do in the opinion of the Government under section 233 B of the Companies Act, 1956; (b) To ascertain correct cost of certain units when Government is approached for protection or financial help; (c) To ascertain correct cost of contract given to private firms under ‘cost plus’ basis; (d) Fix reasonable prices of certain items of production so as to prevent undue profiteering. 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.
To guide management in the formulation and implementation of incentive bonus plans based on productivity and cost savings; 13. This argument overlooks the fact that modern industries are running under highly competitive conditions and that every manufacturer should know the actual cost of production to decide how far he can reduce the selling price. A cost should be shared only by those units which pass through the departments for which such cost has been incurred. It is necessary to use the data so generated to take corrective actions which require a lot of Moreover, it differs from the financial accounting we practice in day to day life.
3. This objective is achieved through fixation of targets, ascertainment of actuals, comparison of actuals with targets, analysis of reasons of deviations between actuals and targets and reporting deviations to management for taking corrective action. The objective of cost accounting is to ascertain the profitability of the activities carried out or planned in a systematic manner. To get an accurate result, a In the books of accounts, many entries have to be made twice; once in the final accounts and then in the cost accounts, which is a tedious process. 5.
All costs incurred because of abnormal reasons (like theft, negligence) should not be taken into consideration while computing the unit cost.
To ascertain cost: The basic objective of cost accounting is to ascertain cost of cost center. It helps to ascertain cost of each activity such as process, operation, job etc. There is a relationship among information needs of management, cost accounting objectives, and techniques and tools used for analysis in cost accounting.
To advise management on future expansion policies and proposed capital projects; 9.
Helps in Organizing: Thus management accountant recommends the use of budgeting, responsibility accounting, cost control techniques and internal financial control. The system of costing should be so devised as to suit the business but not the business to suit the system. Objectives of Cost Accounting . In turn, it helps to rationalise the organisation structure. 9.
This all needs the intensive study of the organisation structure.