Cost & Management

Accounting-I

Basic Concepts

Meaning & Definition

Cost- the amount of
expenditure (actual or
notional) incurred on, or
attributable to a specified
thing or activity-CIMA,
London
Costing-the techniques and
processes of ascertaining

Cost Accounting
Cost Accounting is the

application of accounting and

costing principles, methods
and techniques in the
ascertainment of costs and
the analysis of savings and/or
excesses as compared with
previous experience or with

Cost Accountancy
the application of costing and

cost accounting principles, methods

and techniques to the science, art
and practice of cost control and the
ascertainment of profitability. It
includes presentation of information
for the purpose of managerial
decision-making-CIMA, London

Objectives of Cost Accounting

Cost Ascertainment
Cost Evaluation
Cost Control
Cost Reduction
Price Fixing
Data for Decision-making: level of

output. Product mix, profitability of

products and processes, comparative
cost schedules

Limitations of Financial
Accounting
Historical

Price Fixation

Unclassified

difficult
No Cost Reduction
Tenders &
Quotations
Data for Reporting
Elimination of loss
Manipulation
No Comparison

Whole Organisation
No Material Control
No Wage Control
No Overheads

Control
No Normalcy
Approach
No Cost Evaluation

Differences Between Financial

Accounting & Cost Accounting

Financial
Financial
Accounting
Accounting

Cost
Cost Accounting
Accounting
Internal Reporting
Periodic Reporting

External Reporting

Annual Reporting

Historical

Objective Information

Divisional

Wholesome Approach

Voluntary

Compulsory
Rigid Preparation

Flexibility

Accurate

Independent

Audit

Historical/Prospective
Subjective

Approximation
dependant
No Audit

Advantages of Cost Accounting

Efficient Management of

Resources
Elimination of Wastages
Cost Control
Facilitating Price Fixation
Helping Decision-making
Preparation of Budgets
Profit Planning

Advantages to Workers
Fair Wages
Recognition of Efficiency
Incentive System of Payment
Cordial Relation
Higher Share of Profit

Advantages to the
Government
Resolving Tax Disputes
Policy Framing
Planning
Price Control
Measuring Efficiency
Quantum of Subsidy

Methods of Costing
Where the Objective is cost

ascertainment:
Process Costing: Unit Costing,

Operating Costing, and Operation

Costing
Job Costing: Job Costing, Batch Costing

and Contract Costing

Systems of Costing:
Where the objective is

cost evaluation:
Standard Costing
Historical Costing

Techniques of Costing
Where the objective is cost

control and cost reduction:

Marginal costing
Absorption Costing

THANK YOU