Basic Cost Objectives and Scope of Cost Accounting
Objectives of cost accounting are ascertainment of cost, fixation of selling price, proper recording and presentation of cost data to management for measuring efficiency and for cost control and cost reduction, ascertaining the profit of each activity, assisting management in decision making and determination of break-even point.
The aim is to know the methods by which expenditure on materials, wages and overheads is recorded, classified and allocated so that the cost of products and services may be accurately ascertained; these costs may be related to sales and profitability may be determined. Yet with the development of business and industry, its objectives are changing day by day.
Following are the main objectives of cost accounting:
- To ascertain the cost per unit of the different products manufactured by a business concern;
- To provide a correct analysis of cost both by process or operations and by different elements of cost;
- To disclose sources of wastage whether of material, time or expense or in the use of machinery, equipment and tools and to prepare such reports which may be necessary to control such wastage;
- To provide requisite data and serve as a guide for fixing prices of products manufactured or services rendered;
- To ascertain the profitability of each of the products and advise management as to how these profits can be maximised;
- To exercise effective control if stocks of raw materials, work-in-progress, consumable stores and finished goods in order to minimise the capital locked up in these stocks;
- To reveal sources of economy by installing and implementing a system of cost control for materials, labour and overheads;
- To advise management on future expansion policies and proposed capital projects;
- To present and interpret data for management planning, evaluation of performance and control;
- To help in the preparation of budgets and implementation of budgetary control;
- To organise an effective information system so that different levels of management may get the required information at the right time in right form for carrying out their individual responsibilities in an efficient manner;
- To guide management in the formulation and implementation of incentive bonus plans based on productivity and cost savings;
- To supply useful data to management for taking various financial decisions such as introduction of new products, replacement of labour by machine etc.
- To help in supervising the working of punched card accounting or data processing through computers;
- To organise the internal audit system to ensure effective working of different departments;
- .To organise cost reduction programmes with the help of different departmental managers;
- To provide specialised services of cost audit in order to prevent the errors and frauds and to facilitate prompt and reliable information to management; and
- To find out costing profit or loss by identifying with revenues the costs of those products or services by selling which the revenues have resulted.
Scope of Accounting
Accounting has got a very wide scope and area of application. Its use is not confined to the business world alone, but spread over in all the spheres of the society and in all professions. Now-a-days, in any social institution or professional activity, whether that is profit earning or not, financial transactions must take place. So there arises the need for recording and summarizing these transactions when they occur and the necessity of finding out the net result of the same after the expiry of a certain fixed period. Besides, the is also the need for interpretation and communication of those information to the appropriate persons. Only accounting use can help overcome these problems.
In the modern world, accounting system is practiced no only in all the business institutions but also in many non-trading institutions like Schools, Colleges, Hospitals, Charitable Trust Clubs, Co-operative Society etc.and also Government and Local Self-Government in the form of Municipality, Panchayat.
The professional persons like Medical practitioners, practicing Lawyers, Chartered Accountants etc.also adopt some suitable types of accounting methods. As a matter of fact, accounting methods are used by all who are involved in a series of financial transactions.
The scope of accounting as it was in earlier days has undergone lots of changes in recent times. As accounting is a dynamic subject, its scope and area of operation have been always increasing keeping pace with the changes in socio-economic changes. As a result of continuous research in this field the new areas of application of accounting principles and policies are emerged. National accounting, human resources accounting and social Accounting are examples of the new areas of application of accounting systems.