Cost Accounting

 1. Cost Accounting : An Overview Introduction of Cost Accounting : Cost accounting has been developed due to limitations of financial accounting. Financial accounting is concerned with record keeping directed towards the preparation of Profit and Loss,Account and Balance Sheet.

 It provides information regarding the profit and loss which is helpful for the management to control the major functions of business like finance, administration, production and distribution.But details regarding operating efficiency to these divisions are lacking in financial accounting. Cost accountancy is the application of costing and cost accounting principles, methods and techniques to the science , art and practice of cost control and the ascertainment of profitability. CONTINUE READING...

2. Cost Audit The Institute of Cost and Management Accountants of England defines Cost Audit as follows - "the verification of cost records and accounts and a check on adherence to the cost accounting procedures and their continuing relevance".

Thus, cost audit involves the following:

 i. Examination of correctness of cost accounts : This involves verification of the cost accounting system, the methods and techniques of costing; the accuracy of the cost accounts and the reports generated.

 ii. Ensuring that the Cost Accounting Plan has been adhered to :

This involves checking whether the objectives/policies laid down by the management are in accordance with the Cost Accounting Plan.

1.2 Objectives of Cost Audit: The objectives of cost audit can be summarized as follows -

 i. Protective Objectives

     a) To examine whether proper cost accounting records as per the provisions of the Companies Act have been maintained. CONTINUE READING...


3. Causes of Difference in Cost and Financial Statement Causes of differences:-

      1) Purely financial items:

              i) Appropriation of Profits-Transferred to  reserves,goodwill,preliminary expenses, dividend paid etc.

             ii)Loss on sale of investment,penalties and fines.

             iii) Interest received on bank deposits,profit on sale of investments,fixed assets,transfer fees. CONTINUEREADING...


4. Role of a Cost Accountant in a Manufacturing Organisation 

A cost accountant in a manufacturing organisation plays several important roles

i.He establishes a cost accounting department in his concern.

ii. He ascertains the requirement of cost information which may be useful to organisational managers at different levels of the hierarchy.

iii.He develops a manual, which specifies the functions to be performed by the cost accounting department. The manual also contains the format of various forms which would be utilised by the concern for  CONTINUE READING...


5. Classification of Costs:

a. On the basis of Time period:

1.      Historical Costs: Costs relating to the past period, which has already been incurred.

2.      Current Costs: Costs relating to the present period.

3.      Pre-determined Costs: Costs relating to the future period; Cost, which is computed in advance, on the basis of specification of all factors affecting it.

b. On the basis of Behaviour / Nature / Variability:

1.     Variable Costs: These are costs which tend to vary or change in relation to volume of production or level of activity. These costs increase as production increases and vice-versa e.g. cost of raw material, direct wages etc. However, variable costs per unit are generally constant for every unit of the additional output.  CONTINUE READING...

6. Cost Accounting Techniques

Cost accounting plays a vital role in helping businesses analyze, control, and optimize their costs. It provides valuable insights into the various components of production, operation, and service delivery. Within cost accounting, several techniques and methods have been developed to aid in cost measurement, analysis, and decision-making. 

In this article, we will explore some of the key cost accounting techniques that businesses employ to enhance their financial management and operational efficiency. CONTINUE READING...

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