The importance of cost accounting

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The importance of cost accounting

Per ton of cost raised. Per yard or per ib of cloth manufactured. Pr unit of electricity generated. Per ton of steel made. Costing and cost accounting Costing is 'the technique and process of ascertaining costs.

Once the information is made available, the costing can be carried out arithmetically, by means from of memorandum statements or by method of integral accounting. Cost accounting is different from costing in the sense that it is the process of accounting for costs. It includes the account ting procedures relating to recording of all income and expenditures and the preparation of periodical statements and reports will the object of ascertain and controlling costs.

It is the formal mechanism by means of which cost of products or services are ascertained and controlled.


Classification of cost The various groups, into which costs are classified, are known as ' classes'. Costs may be classified according to different bases or characteristics, such as; 1.

On the basis of production and process 2. On the basis of element or nature 3. On the basis of function 4. On the basis of behavior or variability 5. On the basis of controllability.

On the basis of production and process In cost accounting, a factory has to bear various types of cost in the process of production.

What is 'Cost Accounting' Maintaining an effective system of internal controls is vital for achieving a company's business objectives, obtaining reliable financial reporting on its operations, preventing fraud and misappropriation of its assets, and minimizing its cost of capital. Both internal and independent auditors contribute to a company's audit system in different but important ways.
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Process costing - Wikipedia Variable Costing Would you ever make a decision in your business without thinking about the costs? Analyzing the costs related to any decision is at the heart of the management process.
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These production costs may be sub-divided into following two types. Direct expenditure It included all those expenditures which can be easily identified wholly with a unit of cost.

It contains material expenses, labor expenses and direct expenses e. Indirect expenditure Indirect expenditure are those expenditure which are incurred for the advantage of number of cost center and are not easily identified with a particular cost center e.

On the basis of element or nature On the basis element, cost can be divided into material, labor and expense. They have been mentioned in details in the following. Materials Materials are needed to produce or provide services.

They can be classified into direct and indirect are given below: These are the materials, which cannot be traced as part of the product, and their cost is distributed among the various cost center or cost units on some equitable basis.

Examples of indirect materials are cost and fuel for generating power, cotton waste, lubricating oil and grease used in maintaining the machinery, materials consumed for repair and maintenance work, dusters and brooms used for cleaning the factory etc.

Labor Lab our is needed to convert the raw materials into finished products.

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It is also needed to supply the goods in the hand of ultimate consumer. It can further be divided into two types as given below: It refers to lab our cost, which can be identified with and allocate to cost centers or cost units. It includes the remuneration paid for converting the raw material into finished products or for altering the construction, composition or condition of the or ducts manufactured by an undertaking.

For example, wages paid for spinning yarn inn case of spinning mills, wages paid for weaving cloth in case of cloth mills, wages paid to a mason for construction of a building by a building contractor etc.

For example; salary paid to factory manager, salary paid to factory supervisor or foremen, salary paid to general manager or sales manager etc.

Other expenses The expenses which are needed in course of production and distribution except material and labor fall into this category. They can be divided into two types as mentioned below:Cost accounting is an accounting method that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs.

Despite its importance, we find many restaurant managers do not calculate food cost correctly, or if they do, they do not fully understand the process. Jun 27,  · The Advantages Product Costing Offers in Financial Accounting. Importance of Pricing in How Can an Organization Implement an Effective Cost Accounting System?

"Scope, Objective & Significance. The importance of cost accounting is as follows: • Importance to Management Cost accounting provides invaluable help to management.

The importance of cost accounting

It is difficult to indicate where the work of cost accountant ends and managerial control begins. © ACCA All rights reserved. 1 Management Accounting (F2/FMA) September to August This syllabus and study guide are designed to help. Process costing is an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process.

Costs are assigned to products, usually in a large batch, which might include an entire month's production. Eventually, costs have to .

Cost accounting Importance and advantages of cost accounting - Online Account Reading