MEANING AND SCOPE OF COST ACCOUNTANCY
Cost accountancy is a specialized field of accounting that focuses on analyzing, managing, and reducing business costs.
According to the Institute of Cost and Management Accountants London
“Cost accountancy is the application of costing and cost accounting principles. Methods and techniques to the science, art and practice of cost control and the ascertainment of profitability. It includes the presentation of information derived therefrom for the purpose of managerial decision making.”
FEATURES OF COST ACCOUNTANCY
The features of cost accountancy are as follows:
- Cost accountancy is a special branch of accountancy dealing with the ascertainment of cost of products and services.
- Cost accountancy is both science and an art.
- It follows the same double entry system as in financial accounting.
- It involves the process of accumulation, classification, analysis, recording and ascertainment of costs.
- It determines the total and per unit cost of products and services.
- It provides data for fixing the selling price of products and services and for determining the quotation price or tender price.
- It provides the data to the management for exercising the effective control over costs.
- It provides data to the management for use in forward planning and decision-making process.
SCOPE OF COST ACCOUNTANCY
The scope of cost accountancy includes the following:
- Costing: Costing refers to the techniques-and processes of ascertaining costs. It involves systems, methods and techniques of accumulation, classification, analysis and appropriate allocation of expenditure incurred in respect of a product or service. Thus costing consists of the principles, rules and methods which are used for determining the costs of products and services.
- Cost Accounting: Cost accounting involves the process of collecting, classifying, analyzing, and interpreting the cost data of a company to provide relevant information for managerial decision-making. This includes determining the cost of producing goods or services, tracking expenses, and identifying areas for cost reduction.
- Cost Management: Cost management involves the use of cost accounting techniques to manage and control costs. This includes developing cost reduction strategies, optimizing production processes, and implementing cost-effective measures.
- Cost Control: Cost control is the guidance and regulation, by executive action, of the costs of operating an undertaking. It guides the organisation to achieve the target of the undertaking for a given period. Cost control involves the setting up of targets for expenses and production performances, measurement of the actuals, comparison of acutals with targets to ascertain the variances, analysis of variances and taking corrective action to eliminate variances.
The guidance and regulation is done through an action by the executive who is responsible for the incurring of the expenditure.
- Budgeting or budgetary control: Cost accountants play a key role in developing and managing budgets for businesses. This includes preparing and monitoring budgets, analyzing variances, and making adjustments to ensure that the business operates within its financial means.
- Performance Analysis: Cost accountants also analyze the financial performance of a company to identify areas for improvement. This includes evaluating financial ratios, analyzing profitability, and assessing financial risk.
- Decision-Making: Cost accountancy provides vital information to support decision-making at all levels of a business. This includes analyzing costs and benefits of alternative courses of action and providing guidance on investment decisions.
- Cost Audit: Cost audit is the verification of the correctness of cost accounts and a check on the without the adherence to the cost accounting plan. The purpose of the cost audit is to ensure that the figures as shown by competitive cost accounts are correct and that cost accounts, cost centres and cost units have been properly charged.
Overall, the scope of cost accountancy is wide-ranging and includes all aspects of managing and controlling costs within a business.