OBJECTIVES OF COST ACCOUNTING

Cost accounting aims at systematic recording of expenses and analysis of the same so as to ascertain the
cost of each product manufactured or service rendered by an organisation. Information regarding cost of
each product or service would enable the management to know where to economise on costs, how to fix
prices, how to maximise profits and so on. Thus, the main objects of cost accounting are the following:
(1) To analyse and classify all expenditures with reference to the cost of products and operations.
(2) To arrive at the cost of production of every unit, job, operation, process, department or service and
to develop cost standard.
(3) To indicate to the management any inefficiencies and the extent of various forms of waste, whether
of materials, time, expenses or in the use of machinery, equipment and tools. Analysis of the
causes of unsatisfactory results may indicate remedial measures.
(4) To provide data for periodical profit and loss accounts and balance sheets at such intervals, e.g.,
weekly, monthly or quarterly, as may be desired by the management during the financial year, not
only for the whole business but also by departments or individual products. Also, to explain in detail
the exact reasons for profit or loss revealed in total, in the profit and loss account.
(5) To reveal sources of economies in production having regard to methods, types of equipment,
design, output and layout. Daily, weekly, monthly or quarterly information may be necessary to
ensure prompt and constructive action.
(6) To provide actual figures of cost for comparison with estimates and to serve as a guide for future
estimates or quotations and to assist the management in their price-fixing policy.
State whether the following statement is “True” or “False”
Costing and Cost Accounting are the same thing:
• True
• False
Correct answer: False
Lesson 1 Introduction to Cost and Management Accounting 5
(7) To show, where standard costs are prepared, what the cost of production ought to be and with
which the actual costs which are eventually recorded may be compared.
(8) To present comparative cost data for different periods and various volumes of output.
(9) To provide a perpetual inventory of stores and other materials so that interim profit and loss account
and balance sheet can be prepared without stock taking and checks on stores and adjustments are
made at frequent intervals. Also to provide the basis for production planning and for avoiding
unnecessary wastages or losses of materials and stores.
(10) To provide information to enable management to make short-term decisions of various types, such
as quotation of price to special customers or during a slump, make or buy decision, assigning
priorities to various products, etc.