Cost Accounting and its objectives

Cost Accounting

The process of accounting for cost which begins with recording of income and expenditure or the bases on which they are calculated and ends with the preparation of periodical statements and reports for ascertaining and controlling costs.

Objectives of Cost Accounting:

The primary objective of study of cost is to contribute to profitability through Cost  Reduction and Cost Control. The following objective of Cost Accounting can be identified.

• Ascertainment of Cost: This involves collection of cost information, by recording them under suitable heads of account and reporting such information on a periodical basis.
• Determination of selling price: Selling price is influenced by a number of factors. However prices cannot be fixed below cost save in exceptional circumstances. Hence cost accounting is required for determination of proper selling price.
• Cost Control and Cost Reduction: In the long run, higher profits can be achieved only through Cost Reduction and Cost Control.
• Ascertaining the profit of each activity: Profit of each department / activity / product can be determined by comparing its revenue with appropriate cost. Hence Cost Accounting ensures profit measurement on an objective basis.
• Assisting management in decision-making: Business decisions are taken after conducting Cost-Benefit Analysis. Hence Cost and benefits of various options are analysed and the Manager chooses the least cost option. Thus Cost Accounting and reporting system assists managers in their decision making process.