Scope of Cost Accounting
The scope of cost accounting goes beyond analyzing the expenses associated with a product or activity. A variety of aspects are taken into account, including types of costs, potential business ventures, budget preparation, and profitability analysis. This information can be used by business owners to make better decisions, eliminate unnecessary expenses, and increase revenue.
The scope of cost accounting is very broad and includes:
A) Cost Ascertainment:
Cost accounting is the process of determining the price of a product or service. Collection of expenses, analysis of expenses, and measurement of production at different stages of manufacturing are included. Different types of production require different methods of costing, such as historical costs, standard costs, process costs, and operation costs.
This can be accomplished in two ways:
- Post-Costing, in which actual information in financial records is used for cost determination.
- Continuous Costing, the process of ascertainment is continuous, meaning the cost information is available as and when the particular activity is completed, so that the entire cost of a particular job is available as soon as it is completed.
B) Control of Costs:
With increased competition, the goal of every business is to sustain costs at the lowest level with efficient operating conditions. To achieve sustainability, it is necessary to examine each individual item of cost in light of the services or benefits obtained in order to maximize the use or recovery of the money invested. In order to locate deviations, if any, and to take remedial measures, this requires planning and use of standard procedures for each item of cost.
C) Proper matching of cost with revenue:
During cost accounting, the manager prepares monthly or quarterly statements that reflect the cost and income information associated with the sale.Cost accountants maintain cost books, vouchers, ledgers, reports and other documents related to cost for future comparison and reference. That too falls into the cost accounting scope.
D) Aids to Management Decision-making:
Decision-making involves choosing between two or more alternatives based on the outcomes of the alternatives. The cost-benefit analysis must also be performed. It can be accomplished through good cost accounting.Cost accounting provides managers with all the information they need to make informed decisions. Analyzing the data acquired by cost accounting, the manager formulates the plan and policies. The manager is able to gain a better understanding of the organization when they see the true and fair picture.Managers can take an appropriate decision based on the organization’s needs in order to maximize results.
E) Theoretical Needs
Cost accounting has a theoretical basis. Data is collected based on statistics and the company uses this data. In many organizations, cost accounting is performed on a yearly basis so that they can keep track of their costs. Moreover, the theoretical form of cost accounting helps the organization make business decisions.
F) Assisting Management
An organization can use cost accounting not only to determine what various jobs, products, and services cost, but also what they should have cost. This can help prevent future losses and wastes by locating losses and wastages. Cost accounting assists management in setting policies and formulating plans for profitable operations through the use of cost studies and investigations.
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