Cost of system itself does not control costs or improve efficiency. Provides data for periodical profit and cost accounts:- adequate costing records supply to the management such data as may be necessary for preparation of profit and loss account and balance sheet, at such intervals as may be desired by the management. This is the longest section and includes a discussion of where the budget director obtains the budget information as well as how the information is used to complete the various schedules and sub-budgets involved. What would be the gross profit and net profit? What would be the anticipated expenses? The techniques used to prepare a master budget are discussed and illustrated in section six. .
The cost accounting provides useful information. In order to operate business at high level of efficiency it is essential on the part of the management to have a frequent review of products, sales and operating result. Fully developed cost accounting system provides ready information regarding stock of raw material, work-in-progress and finished goods, facilitates the preparation of financial and other statements. What are the ways to expand the business? The purpose of this assignment is to introduce the master budget or financial plan. Concentrating on profitable operations and eliminating non- profitable ones can maximize profit. Predetermined objectives can be: 1. Cost accounting assists the management in fixing up selling price not only during depression period Profitable and unprofitable activities are disclosed: - accounting makes possible for management to distinguish between profitable and nonprofitable activities.
It will help the management in forming future course of action. Budgetary controls and standard costs are two important cost accounting techniques, which are used to control costs. What would be the total cost? The system is quite expensive because analysis allocation and apportionment of costs and absorption of Overhead require considerable amount of clerical work. Helps in cost reduction: - cost accounting helps in cost control, which aims at improving efficiency by controlling and reducing cost. Now question arises, how these predetermined objectives can be achieved by cost accountant now to achieve these goals cost accountants prepare budget, variance analysis, and cost reports.
The chapter will go further to explain various terminologies, which form the basis for the cost accounting framework that will be used throughout the course. However, this is not entirely right. This section also includes a diagram of the master budget that provides an overview of the overall budgeting process. Budgetary control and standard costing are important techniques used control costs. Management accounting is the internal business building role of accounting and finance professionals who work inside organizations. In fact, of the five million finance function professionals in the U. The purpose of a cost accounting system is to provide management information about costs and profits.
The cost accounting relates to the collection, classification, and ascertainment of cost and its accounting and control relating to the various elements of the cost. The first section provides a discussion of the underlying concepts of financial planning and budgeting including the various types of budgets. During the war most of the manufacturing was done on cost plus system. Cost accounting is the establishment of budgets, standard costs and actual costs of operations, processes, activities or products and the analysis of variances profitability or social use of funds. This and the fol low ing two chap ter s wil l giv e an int rodu cti on to cost accoun tin g. With a renewed emphasis on good internal controls and sound financial reporting, the role of the management accountant is more important than ever.
Guides future production policies:- if the costing records are kept, comparative cost data for different periods and various volumes of production will be available. Cost accounting a specialized branch of accounting, which involves classifications, accumulation, assignment and control of costs. Co st ac co un ti ng provides a bank of data for the management accountant to use. This topic includes an important set of concepts and techniques that represent the major planning device for an organization, as well as the foundation for a traditional standard cost performance evaluation and control system. Cost accounting has emerged mainly because of limitations of financial accounting. The term cost accounting and management accounting are often used to mean the same thing, although strictly there are differences. Helps in estimates: - adequate costing records provide a reliable basis up on which tenders and estimates may be prepared.
The study facilitates measuring of efficiency of organization or a whole as well as of departments besides devising means of increasing efficiency. Cost accounting is different from costing in the sense that the former provides only the basis and information for ascertainment of cost. What would be the projected sales? These professionals are involved in designing and evaluating business processes, budgeting and forecasting, 2 implementing and monitoring internal controls, and analyzing, synthesizing, and aggregating information—to help drive economic value. Since beginning of twentieth century and particularly during the and after World War-I the industrialists become more and more cost conscious. Section five introduces the underlying concept of responsibility accounting and provides a brief discussion of a controversial issue associated with this concept. Help in price fixation: - cost plays an important role in the price fixation.
Thi s cha pte r provides definitions and the link between cost accounting, management accounting and financial accounting. It is the formal mechanism by means of which costs of product or services are ascertained and controlled. If we analyze from a sole trader to large firms, organizations and companies before they start their business they need some resources to start their business and as soon as they acquire those resources they set certain goals objectives which are called the predetermined objectives of that business. A cost account ing system is often the basis for a manage ment accounti ng system. Sections two and three include short, but important discussions of the purposes and benefits of budgeting and the limitations and problems involved in budgeting. The efficiency can be measured and costs are controlled through formulation of various devices to increase the efficiency. What are the predetermined objectives of company? Cost accounting aims to establish the following: a the co st of go ods pr oduc ed or se rvi ces pr ovi ded ; b the co st of a de part men t or wor k sect ion ; c wha t r eve nu es h ave be en ; d th e pr of it ab il i t y of a pr od uc t, se rv ic e or de pa rt me nt or t he organization in total; e se ll in g pr ic es ; f th e va lu e of st ock s of goo ds ; g fut ure co sts o f goo ds an d serv ice s; an d h com pari son of a ctu al an d bud get ed co sts 2 A cost accounting system is a system used by an organization to gather, store and analyse data about costs.
The assumptions upon which the budget is based are briefly described in section four. If the management is alert and efficient, it can control costs without the accounting system. This was partly due to because of growing competition between manufacturers and partly because of increasing government control over pricing. Financial accounting failed to achieve those objectives, and it therefore made the accountants think and a new technique of accounting known as cost accounting. The results shown by the cost accounts differ materially from that shown by the financial accounts. Costing: Costing is the technique and process ascertaining costs.