Cost Accounting: Definitions,Cost Accountant Role, Functions and Objectives

Read this article to learn about the definition of cost accounting, objectives, functions and objections of cost accounting. functions of cost accounting ,nature and functions of cost accounting Cost Accountant Job Description ,Functions of Cost & Management Accounting,Nature and Scope of Cost Accounting objectives of cost accounting, nature of cost accounting  definition of cost accounting scope of cost accounting Cost Accounting Roles, Functions and Benefits importance of cost accounting main objectives of cost accounting Functions of Cost Accounting and nature of cost accounting and Cost Accountant Role.
Cost accounting Definitions, Cost Accountant Role, Functions and Objectives of cost accounting


 Definitions:To understand the meaning of Cost Accounting, there is need of explaining some related terms also.

(1) Cost:

Cost has been defined in the terminology given by the Chartered Institute of Management Accountants (CIMA) as 'the amount of expenditure incurred or attributed on a given thing'. More simply, it can be defined as that which is given or scarified to obtain something. Thus, it would consist of direct cost, direct labor costs, direct and indirect expenses allocated or apportioned to it.

(2) Cost Accountancy:

The Chartered Institute of Management Accountants in England (CIMA) has defined Cost Accountancy as the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost and the ascertainment of profitability. It includes the presentation of information derived from it for the purpose of management decision-making. Cost Accountancy is, therefore the science, art and the practice of cost accountant.

Cost Accountancy is science because it is the systematic knowledge that a cost accountant should possess. The cost-effectiveness of marginal costing and the cost-effectiveness of marginal costing as a cost- Etc.Cost Accounting is also practicing the practice of a cost accountant. It includes his continuous efforts in presentation of information for the purpose of managerial decision-making.

Cost Accountancy consists of several subjects, such as Cost Accounting, Costing, Cost Control and Cost Audit

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(3) Cost Accounting: The Chartered Institute of Management Accountants in England (CIMA) has defined Cost Accounting as, 'the process of accounting for which is incurred or committed to establishment of its ultimate relationship with cost centers and cost units. In its widest use, it embraces the preparations of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried or planned. It is a formal mechanism by means of which costs of products or services are ascertained and controlled.It is concerned with accumulation, classification, analysis and interpretation of cost data for three major purposes:

(A) ascertainment of cost,

(B) operational planning and control, and

(C) decision-making.

(4) Costing: Costing has been defined by the Institute as 'the technique and process of ascertaining cost'. 

(5) Cost Control: Cost control has been defined as 'the guidance and regulation by executive action of costs of operating on undertaking'. It is a cost-effective, cost-effective, cost-effective, cost-effective, cost-effective and cost-effective way to manage your business. Cost control is exercised through a number of techniques such as Standard Costing and Budgetary Control.

(6) Cost Audit: Cost Audit has been defined by the Institute as' the verification of cost accounts and a check on the adherence to the cost accounting plan. It is an independent expert opinion on the cost accounts of different outputs of an undertaking and a verification.

Role of Cost Accountant in Cost accounting

Most organizations must make decisions about setting or accepting the selling prices of their products or services and this is the primary duty of a cost accountant.

How a Cost accountant records sales prices?

In some companies prices are determined by the total supply and demand forces of the market and the firm has little or no influence on the selling prices of its products or services. This situation is likely to occur when there are many companies in an industry and there is little to distinguish their products from each other.

No company can influence prices significantly by its own actions. For example, in commodity markets such as wheat, coffee, rice and sugar, prices are set for the market as a whole, depending on the forces of supply and demand. In addition, small firms operating in an industry where prices are set by major market leaders will have little influence on the price of their products or services. Companies that have little or no influence on the prices of their products or services are described as price takers.

 Wheldon defines costing as follows:"Costing is the classifying, recording, and allocation of expenditure for the. And for the presentation of suitably arranged data for the purposes of control and guidance of the management. It includes the ascertainment of the cost of every order, job, contract, process, service or unit as may be appropriate. It deals with the cost of production, selling and distribution. "Thus, the total cost is constituted by the cost of producing and selling the products.

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 Standard Costing is a system that seeks to control the cost of each unit through determining beforehand what should be the cost and then its comparison with actual cost and also analysis of variances together with their causes. Budgetary Control means laying down in monetary and quantitative terms.

Objectives of Cost Accounting:

The definition given by the CIMA brings out the vital point that the Cost Accounting has the following objectives:

(i) Ascertainment of cost and determining the selling price.

(ii) Cost control i.e. keeping costs under check;

(iii) Ascertaining profitability and profits earned on each activity including ascertaining causes that lead to a particular figure; and

(iv) Collection and presentation of such information or statements as are required by management in its task of planning and making decisions.

The decisions to be made may be of various types, some examples of which are:

(a) fixing prices under normal and special circumstances;

(b) determining priorities for products;

(c) deciding whether a component will be bought from the market or made within the factory itself; and

(d) deciding on the best processes of manufacture etc.

A particular firm may not desire to realize all the aims stated above and may, therefore, design its Cost Accounting system only for a particular purpose. But, in general, Cost Accounting has a wide role to play. The nature of cost accounting can be summarized as “analyzing, recording, standardizing, forecasting, comparing, reporting and recommending. It is the business of the cost accountant to fill in turn the role of historian, news agent and prophet. As historian he must be meticulously accurate and sedulously impartial. As news agent he must be up to date, selective and pithy. As prophet he must combine knowledge and experience with foresight and courage”.

Functions of Cost Accounting or Cost-Accountant:

The Following Are The Important Functions of Cost Accounting:

Ascertainment of cost of product: Role of Cost accounting ascertains cost of production of each job, process, or work order. According to the requirements of the organization.

Fixation of selling prices: Cost accounting helps to find the cost of production and fixation of selling prices of the product or process job or operation. It also helps in preparing necessary tenders or quotations.

Measurement of efficiency: Functions of Cost accounting measures the efficiency of each product, process or departments.

Cost control procedure: Cost accounting controls. The deviation between them may be taken.

Reporting to the Management: Cost accounting reports to the management periodically which may be monthly, quarterly or half yearly. According to the reports of the cost accounting, the management takes the decisions.

According to Blocker and Weltemer ‘Cost Accounting is to serve management in the execution of policies and in comparison of actual and estimated results in order that the value of each policy may be appraised and changed to meet the future conditions’.

Following are main functions of cost accounting:

(i) To work out cost per unit of the different products manufactured by the organisation;

(ii) To provide an accurate analysis of this cost;

(iii) To maintain costs to the lowest point consistent with the most efficient operating conditions. It requires the examination of each cost in the light of the service or benefit obtained so that the maximum utilization of each rupee will be obtained;

(iv) To work out the wastage in each process of manufacture and to prepare reports as may be necessary to assist in the control of wastage;

(v) To provide necessary data for the fixation of selling price of commodities manufactured;

(vi) To compute profits earned on each of the products and to advise management as to how these profits can be improved;

(vii) To help management in control of inventory so that there may be minimum locking up of capital in stocks of raw materials, stores, work-in-process and finished goods

(viii) To install and implement cost control systems like Budgetary Control and Standard Costing for the control of expenditure on materials, labour and overheads;

(ix) To advise management on future expansion;

(x) To advise management on the profitability or otherwise of new lines of products;

(xi) To carry out special cost studies and investigations which are invaluable to management in determining policies and formulating plans directed towards profitable operations.

More information on Objections to Cost Accounting:

Two of the principal objections against the installation of costing system in a factory are that:

(a) it is unnecessary and

(b) it is expensive.

In this age of competition in the business world, a manufacturer must know the exact cost not only of each article made but also of each element of cost, so that his selling price may be reasonably fixed, neither too high price which may reduce business nor to low price which may lead to loss.

The main purpose of ascertaining costs is to provide the management with facts and information to carry on the business in the most efficient manner, and to achieve advantages of a costing system:

(i) It enables the business to ascertain the exact cost of each specific unit of output and the extent to which each element of expenditure contributes to such cost.

(ii) It provides a reliable basis upon which tenders and estimates may be prepared.

(iii) It facilitates the detection and prevention of waste, leakage and inefficiency.

(iv) It provides invaluable data for purposes of comparison.

(v) It provides an independent and collateral check upon the accuracy of financial accounts.

(vi) It enables unprofitable activities of the business disclosed, so that steps may be taken to eliminate or reduce them.

In view of these advantages, the objection that a costing system is unnecessary is not quite correct.

(b) It is Expensive:

When it is desired to introduce a costing system in a manufacturing business, that business must be studied in detail with special reference to its manufacturing technique and the advice of its technical staff must be obtained in framing the system of costing. The system to be adopted to a particular case must be adopted to the requirement and circumstances of that case.

A simple costing system will in many case suffice, and unnecessary elaboration must always be avoided Elaborate costing records should only be kept when their maintenance is warranted, since a system of Cost Accounting must be profitable investment and produce a benefit commensurate with the expenditure incurred upon it. It must be simple and it must be elastic and capable of adaptation to changing conditions. Therefore, it cannot be said that a costing system is expensive.

A good management should be able to benefit greatly from the installation of' Cost Accounting', but the character of management is of vital importance here. Really speaking, the Role of  cost accountant can only prepare information highlighting the points which should be studied, but action is something which is beyond the cost accountant and is a function of management itself. Unless, therefore, the management is, firstly, willing to study the information compiled and presented by the cost accountant, secondly, capable of doing that and, thirdly, willing to take action on the basis of that information, installation of a Cost Accounting system will prove of no avail.
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