Cost Accounting

11189 Words45 Pages
Chapter 1
Basic Cost Concepts

Learning Objectives

• To understand the meaning of different costing terms to understand different costing methods
• To have a basic idea of different costing techniques
• To understand the meaning of cost sheet

In order to determine and take a dispassionate view about what lies beneath the surface of accounting figures, a financial analyst has to make use of different management accounting techniques. Cost techniques have a precedence over the other techniques since accounting treatment of cost is often both complex and financially significant. For example, if a firm proposes to increase its output by 10%, is it reasonable to expect total cost to increase by less than 10%, exactly 10% or
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are also given due consideration by management before deciding upon the price but the cost plays a dominating role.

Determining and Controlling Efficiency
Cost accounting involves a study of various operations used in manufacturing a product or providing a service. The study facilitates measuring the efficiency of an organization as a whole or department-wise as well as devising means of increasing efficiency.

Cost accounting also uses a number of methods, e.g., budgetary control, standard costing etc. for controlling costs. Each item viz. materials, labour and expenses is budgeted at the commencement of a period and actual expenses incurred are compared with budget. This greatly increases the operating efficiency of an enterprise.

Facilitating Preparation of Financial and Other Statements
The third objective of cost accounting is to produce statements whenever is required by management. The financial statements are prepared under financial accounting generally once a year or half-year and are spaced too far with respect to time to meet the needs of management. In order to operate a business at a high level of efficiency, it is essential for management to have a frequent review of production, sales and operating results. Cost accounting provides daily, weekly or monthly volumes of units produced and accumulated costs with appropriate analysis. A developed cost accounting system provides immediate information regarding stock of raw

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