Objectives of Cost Accounting
Cost accounting involves the systematic tracking of expenses and analysis of the same so that an organization is aware of the costs associated with each product it manufactures or service it renders. With information regarding the cost of each product or service, management can find cost-saving opportunities, fix prices, maximize profits, and so on. Basic objective of cost accounting is :
- To Analyze and classify all expenditures based on the cost of the products and operations.
- To Establish a cost standard for each unit, job, operation, process, department, and service.
- To show the management any inefficiencies and the amount of waste, whether of materials, time, expenses, or in the use of machinery, equipment, and tools. Analyzing reasons for unsatisfactory results may reveal remedial measures.
- To provide data for periodical profit and loss accounts and balance sheets as required by the management during the financial year, not only for the whole company but also for departments or individual products. In the profit and loss account, it is also important to understand in detail the exact reasons why profit or loss was made.
- To Identify sources of economies in production by examining methods, types of equipment, design, output, and layout. Information on a daily, weekly, monthly or quarterly basis may be necessary to ensure prompt and constructive action.
- To compare actual costs with those estimated, serve as a guide for future estimates or quotations, and assist management in formulating their price-fixing policies.
- For preparing standard costs, to indicate what the cost of production ought to be and with what actual costs may be compared.
- To present comparative figures for different periods and various output volumes.
- The purpose is to maintain a perpetual inventory of stores and other materials so that interim profit and loss accounts and balance sheets can be prepared without frequent stock checks. To provide a basis for production planning as well as to avoid unnecessary losses and wastages of materials and stores.
- To provide management with information to make short-term decisions of various kinds, such as quoting a price to a special customer, making a purchasing decision, assigning priorities to various products, etc.