What Is Cost Accounting ?
Cost accounting refers to the process of identifying, tracking, recording, analyzing and reporting the expenses of the company. It is a branch of accounting that provides detail cost information that helps the company to make decisions regarding budgeting and pricing. The main purpose of cost accounting is to understand the cost goods and services. It is used for price determination, cost reduction and control, budgeting, planning and performance evaluation.
Objectives Of Cost Accounting
The main objectives of cost accounting can be expressed as follows:
1. Ascertainment Of Cost
Cost accounting helps to ascertain the cost of products, departments, sections, units and different departments of a business firm.
2. To Fix Price
Cost accounting determines the cost of production of the product. So, it guides the management to fix the selling price of the product.
3. Cost Control
It helps to minimize the cost of materials, labor, jobs and process by implementing effective control system.
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4. To Facilitate Decision Making
Cost accounting provides cost information and data to the management. So, it assists the management in decision making process (such as make or buy decision, hire or purchase decision, sell or process further decision etc.).
5. To Maximize Profit
It helps to reduce wastage and control unnecessary cost which leads to higher profit.
6. To Facilitate Budgeting And Forecasting
Cost accounting analyzes historical cost data and current trends that helps the businesses to create budget and forecast future expenses. It helps the company to allocate resources effectively to achieve the targets.
7. Inventory Management
It helps to maintain optimal level of inventory by preventing overstocking or understocking. It helps to reduce the wastage of raw materials.
8. To Improve Efficiency
Cost accounting helps to identify the efficiencies and waste in the production that helps the management to take appropriate steps to improve productivity. So, it helps to increase efficiency, productivity as well as profitability of the business.
