Nature and scope of cost accounting. Cost Accounting 2019-01-11

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What are the Scope of Cost Accounting?

nature and scope of cost accounting

The total cost of manufacturing a product broadly consists of material, labour and other expenses. It is essential to seek the support of various departmental managers. Thus a basis for judging the efficiency of an year with past year or worthfulness of two different jobs or operations cannot be appraised. But financial accounts does not provide the information relating to cost per unit of production. However, in modern times this has assumed the secondary objective of cost accounting. History of business unit : The history of a business unit implies the duration of its existence, position in the industry, the rate of growth, policy and philosophy of management and the like.


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Management Accounting: Concept, Functions and Scope

nature and scope of cost accounting

This problem may be overcome by suggesting them about the simplicity of the system and the existence of a separate cost accounting department to look after costing matters. Okafor 1998:20 observed that crude oil or the petroleum sector in the last fifteen years has provided the nation with resources for unprecedented economic development and growth, yet the nation could have achieved more than these had she planned better and executed her plans more efficiently and effectively. Cost accounting department and finance department : The finance department is concerned with receiving and disbursement of cash. Cost accounting furnishes both the total cost of production as well as cost incurred at each and every stage of production. In the course of its evolution it passed through following stages. Financial accounting is concerned with d find the actual cost of product 5.

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Cost Accounting

nature and scope of cost accounting

It does not tell how to increase the profit and maximize the return on the capital employed. Thus, it has nothing to do with their realizable or replaceable value. Job costing, contract costing, etc. Facilitates comparison : It facilitates cost comparison in respect of jobs, process, departments and also between two periods. Otherwise it will prove to be misleading.

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Nature And Scope of Management Accounting

nature and scope of cost accounting

These parties constitute the owners, creditors, employees, government agencies, tax authorities, prospective investors, and last but not the least the management of the business. On the other hand Management accounting relates to the use of all such information gathered and processed by cost accounting along with financial accounting, by management. Financial accounting provides the very basis for such a function. Analysis and Interpretation of Data: The accounting data is analyzed and interpreted meaningfully for effective planning and decision-making. Forms of different colours can be used to distinguish different documents. Cost accounting is a branch of knowledge : Though considered as a branch of financial accounts, cost accounting is one of the important branch of knowledge, i. He further explained that such organizations which include governmental units, foundations, educational organizations and charitable homes have been very significant in well of business.


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What is cost accounting?

nature and scope of cost accounting

For example, continuous type of industries may use process costing as a method, using actual cost as a system, under Standard Costing Technique. Cost can be predetermined either by standard costing or estimated costing. Explain the advantages of cost accounting. Brown and Howard 1982:862 writing on the Management accountants role enunciated that the efficient performance of any firm is hinged on the establishment of an internal control system. Simplicity : Cost accounting system involves detailed analysis of cost. Some are weekly and some monthly. Area of control to be exercised : The areas where cost control is to be exercised is to be identified so that each manager may take action relevant to his activities.

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Nature and Scope of Accounting

nature and scope of cost accounting

In recent times, it also includes tax planning. However it is to be remembered that todays business functions in a competitive conditions and every manufacturer must know the actual cost of production in order to reduce the selling price. Heavy expenses in installing and maintaining the system : The setting up of a separate costing department with staff often poses a problem. Cost accounts provide reliable data on the basis of which future cost is estimated. Ascertainment of cost : This was considered to be the primary objective of cost accounting in the initial stages of its development. Hence, the point of no-profit-no-loss cannot be made out under financial accounts.

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Cost Accounting

nature and scope of cost accounting

However, as was mentioned earlier, the system of cost accounting must be a useful investment, i. Keeping this in view a new branch of accounting known as Management Accounting has been developed to cope with the limitations of financial accounting and cost accounting. Reconciliation with financial accounts : The system of cost accounts must be capable of reconciling with financial accounts so as to check accuracy of both the system of accounts. It helps government in formulating policies regarding export, import, taxation, price control measures, wage fixation, etc. An accountant can track, analyze and record the cost of food supplies, cocktail ingredients, beverages and other products on your menu. The chief forms of manipulating the financial accounts assume the form of over or undervaluation of inventory, excessive or inadequate provision for depreciation, creation of secret reserves, etc.

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Cost Accounting

nature and scope of cost accounting

Under decentralisation system a separate cost accounting department is set up for each and every firm under the supervision of a competent cost accountant. Budgetary control controls the activities of the business through the operations of budget by comparing the actual with the budgeted figures, finding out the deviations, analysing the deviations in order to pinpoint the responsibility and take remedial action so that adverse things may not happen in future. Reporting : The cost accounting system to be installed must ensure frequency and promptitude in reporting cost data to all levels of management. However, they may be used as the basis for making future estimates and projections. Donald further explained that once identified, the economic event called transactions must be measured in financial terms, that is quantified in naira and kobo. This statement is absolutely wrong. That is why; management accounting is treated as extension of cost accounting.

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