{"id":2719,"date":"2019-11-21T11:22:34","date_gmt":"2019-11-21T11:22:34","guid":{"rendered":"https:\/\/commerceiets.com\/?p=2719"},"modified":"2019-11-21T11:22:34","modified_gmt":"2019-11-21T11:22:34","slug":"cost-accounting","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/cost-accounting\/","title":{"rendered":"COST ACCOUNTING"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/cost-accounting\/#COST_ACCOUNTING\" title=\"COST ACCOUNTING\">COST ACCOUNTING<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/cost-accounting\/#Cost_Accounting_is_an_art_or_process_of_recording_analyzing_and_classifying_of_expenditure_for_the_purpose_of_product_costing_or_service_costing_ascertainment_of_profitability_operational_planning_and_cost_control\" title=\"Cost Accounting is an art or process of recording, analyzing and classifying of expenditure for the purpose of product costing or service costing, ascertainment of profitability, operational planning and cost control. \">Cost Accounting is an art or process of recording, analyzing and classifying of expenditure for the purpose of product costing or service costing, ascertainment of profitability, operational planning and cost control. <\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/cost-accounting\/#NEED_FOR_COST_ACCOUNTING\" title=\"NEED FOR COST ACCOUNTING\">NEED FOR COST ACCOUNTING<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/cost-accounting\/#ADVANTAGES_OF_COST_ACCOUNTING\" title=\"ADVANTAGES OF COST ACCOUNTING\">ADVANTAGES OF COST ACCOUNTING<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/cost-accounting\/#LIMITATIONS_OF_COST_ACCOUNTING\" title=\"LIMITATIONS OF COST ACCOUNTING\">LIMITATIONS OF COST ACCOUNTING<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1 class=\"has-text-align-center wp-block-heading\" id=\"cost-accounting\"><span class=\"ez-toc-section\" id=\"COST_ACCOUNTING\"><\/span>COST ACCOUNTING<span class=\"ez-toc-section-end\"><\/span><\/h1>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"cost-accounting-is-an-art-or-process-of-recording-analyzing-and-classifying-of-expenditure-for-the-purpose-of-product-costing-or-service-costing-ascertainment-of-profitability-operational-planning-and-cost-control\"><span class=\"ez-toc-section\" id=\"Cost_Accounting_is_an_art_or_process_of_recording_analyzing_and_classifying_of_expenditure_for_the_purpose_of_product_costing_or_service_costing_ascertainment_of_profitability_operational_planning_and_cost_control\"><\/span>Cost <a aria-label=\"Accounting (opens in a new tab)\" href=\"https:\/\/commerceiets.com\/accounting\/\" target=\"_blank\" rel=\"noreferrer noopener\">Accounting<\/a> is an art or process of recording, analyzing and classifying of expenditure for the purpose of product costing or service costing, ascertainment of profitability, operational planning and cost control. <span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">It is a forward looking approach which is related to the recording, analyzing and classifying of expenditure with the objective of ascertaining the total and per unit cost of product or service. <\/p>\n\n\n\n<p class=\"has-luminous-vivid-amber-background-color has-background has-medium-font-size\"><strong>ACCORDING TO ICMA (Institute of Cost and Management Accountants)<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">\u201cCost accounting is the process of accounting for cost from\nthe point at which expenditure is incurred or committed to the establishment of\nits ultimate relationship with cost centers and cost units. In its widest\nusage, it embraces the preparation of statistical data, the application of cost\ncontrol methods and ascertainment of the profitability of activities carried\nout or planned.\u201d<\/p>\n\n\n\n<p class=\"has-luminous-vivid-amber-background-color has-background has-medium-font-size\"><strong>ACCORDING TO RN CARTER<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">\u201cIt is a system of recording in accounts the materials used and labor employed in the manufacture of certain commodity or on a particular job.\u201d<\/p>\n\n\n\n<p class=\"has-luminous-vivid-amber-background-color has-background has-medium-font-size\"><strong>ACCORDING TO GORDON SHILLINGLAW<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">\u201cCost Accounting is defined as the body of concepts, methods\nand procedures used to measure, analyze or estimate the costs, profitability\nand performance of individual products, departments and other segments of a\ncompany\u2019s operations, for either internal or external use or both and to report\non these questions to the interested parties.\u201d<\/p>\n\n\n\n<p class=\"has-luminous-vivid-amber-background-color has-background has-medium-font-size\"><strong>ACCORDING TO THE HORTON AND MASON<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">\u201cCost Accounting is a method of recording accurately the\nfacts of manufacture or other undertakings in such a way that necessary\ninformation thereon maybe available in the form required at the earliest\npossible moment.\u201d<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Thus costs accounting refers to that branch of accounting that:<\/p>\n\n\n\n<ul><li>Deals with Costing i.e. the techniques and process of ascertaining costs.<\/li><li>Helps in Analyzing and classification of costs on varied basis.<\/li><li>Is internal accounting to the organizations.<\/li><li>Assists the management in controlling the costs.<\/li><\/ul>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"need-for-cost-accounting\"><span class=\"ez-toc-section\" id=\"NEED_FOR_COST_ACCOUNTING\"><\/span>NEED FOR COST ACCOUNTING<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"has-medium-font-size\">Cost accounting is the branch of the accounting. As accounting is associated with recording only day-to-day transactions, it fails to report any data regarding the cost incurred in producing any unit of commodity. Thus, to provide the detailed view of the cost incurring in various activities, processes, or jobs; cost accounting has been emerged. The need for emergence of cost accounting can be explained with the help of the following points:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide21.jpg\" alt=\"NEED FOR COST ACCOUNTING\" class=\"wp-image-2727\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide21.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide21-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide21-768x576.jpg 768w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>LACK OF PROVISION FOR MATERIAL CONTROL<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The traditional accounting provides the amount of opening\nstock and closing stock of materials and the cost of the materials consumed by\npreparing manufacturing and trading account. But it fails to provide the\ninformation about <\/p>\n\n\n\n<ul><li>How much units are issued to various\ndepartments?<\/li><li>What is the value of raw materials used in the\nproduction process?<\/li><li>How much cost has incurred in each process\nindividually?<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">All these questions can be answered by preparing the cost\naccounting records. <\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>NO DETAILED INFORMATION ABOUT LABOR COST<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Labor is an integral part of the business. The success of\nthe business depends highly upon the efficiency and inefficiency of the labor.\nFinancial accounting records the total amount of wages or salaries provided to\nthe labor and nothing more than that in the accounting records. It fails to\nprovide the following information:<\/p>\n\n\n\n<ul><li>How many workers are employed in the\norganization?<\/li><li>How many workers are efficient or inefficient?<\/li><li>How many workers are employed on various jobs,\nprocesses etc.?<\/li><li>What are the varied rates of wages and salaries\npaid to various categories of labor?<\/li><li>What is the number of working hours of the labor?<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">All this detailed can be getting from the cost accounting.\nThis has led to the emergence of cost accounting.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>IRRELEVANCE OF CLASSIFICATION OF ACCOUNTS IN GENERAL MANNER <\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The financial accounting classifies the accounts into three\nparts on traditional basis: Real accounts, personal accounts and nominal\naccounts. And on modern basis, the accounts are classified into five categories\nsuch as asset account, capital account, liability account, expense account and\nincome account.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">This classification is of no use in determining the cost\nunit-wise, job-wise, process-wise, batch-wise. Thus the need for cost\naccounting emerges.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>IMPROPER CLASSIFICATION OF COSTS<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">There is no proper classification of costs in the\ntraditional accounting. There was no record of direct cost, indirect cost or\noverheads, material cost, labor cost etc. the information regarding these costs\ncan be made available to the management by preparing the cost accounts. This\nmakes the task of cost control easier. Thus, it was necessary to emerge cost\naccounting as separate branch.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CANNOT ASCERTAIN TRUE COST OF PRODUCTION<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The true cost of production can be ascertained by taking\ninto consideration the cost of raw materials consumed, cost of labor, cost of\nnormal or abnormal loss, cost of various operations, and cost of each process.\nHowever, the financial accounting records cost of materials consumed which does\nnot provide the clear view of the each element of cost. This can only be\nascertained by following the cost accounting.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>LACK OF SYSTEM OF STANDARDS<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">To accomplish a goal, the standards should be set in\nadvance. In accounting, the standards are set regarding the overall performance\nof the business concern. No target is set regarding<\/p>\n\n\n\n<ul><li>How many units are to be produced?<\/li><li>What will be estimated hours of working?<\/li><li>The standard cost involved in each task?<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">Only the cost accounting facilitates the setting of targets\nfor such issues and analyzing the deviations and then taking steps to correct\nthem.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>NO RECORDS FOR WASTAGES<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Cost accounting is needed to take into account the records\nregarding the wastage of materials, man-hours, and machine-hours taking place\nduring the course of production. These wastages are not recorded and\ncommunicated by preparing the financial accounts like trading account, profit and\nloss account and balance sheet.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>LACK OF ASSISTANCE IN COST CONTROL<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Financial accounting has no system of cost control. It records the expenses when they have already been incurred. So it was just a post-mortem analysis of the records. There is no system to fix the responsibility for not achieving the set standards. So cost accounting is needed to provide a framework for cost control. This is facilitated by the cost accounting through the use of its tools and techniques of marginal costing, break-even analysis, standard costing and variance analysis and budgetary control etc. <\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>NO ASSISTANCE IN DECISION MAKING OR PLANNING<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Financial accounting system does not provide any information\nor guidance to take the decisions regarding the following issues:<\/p>\n\n\n\n<ul><li>Evaluation of profitability of alternative\nmethods of production.<\/li><li>Open or shut down decisions. <\/li><li>Continue or discontinue any product line or\nproduct category.<\/li><li>Manufacture or buy decision.<\/li><li>Determination of break-even point and margin of\nsafety etc.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">This can be made possible only with the help of cost\naccounting.<\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"advantages-of-cost-accounting\"><span class=\"ez-toc-section\" id=\"ADVANTAGES_OF_COST_ACCOUNTING\"><\/span>ADVANTAGES OF COST ACCOUNTING<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"has-medium-font-size\">Cost Accounting system renders invaluable services to the manufacturers, management, employees, investors, consumers and government. The various advantages of cost accounting are as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide32.jpg\" alt=\"ADVANTAGES OF COST ACCOUNTING\n\" class=\"wp-image-2729\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide32.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide32-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide32-768x576.jpg 768w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>ASCERTAINMENT OF COST<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The sphere of cost accounting comprises cost ascertainment\nfirstly. Cost ascertainment means determining the cost incurred in producing\nany product. The cost ascertainment includes:<\/p>\n\n\n\n<ul><li>Collection of expenses<\/li><li>Analysis of expenses<\/li><li>Measurement of production<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">The cost may be ascertained by following ways:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Activity Based Costing<\/strong> in which each activity is taken as fundamental cost object.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Unit costing<\/strong> which is adopted to ascertain the total cost and also per unit cost by making a detailed analysis of different elements of cost.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Job Costing<\/strong> method as per which costs is ascertained for the particular job or work.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Batch Costing<\/strong> which is used when products are produced in batches and cost is ascertained for each batch separately.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Contract Costing<\/strong> is a method of cost ascertainment of a particular contract which is non-recurring in nature. The person executing the contract is known as \u2018contractor\u2019 and the person with whom the contract is executed is known as the \u2018Contractee\u2019.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Process Costing<\/strong> is a method employed to ascertain the cost of production in industries where a product passes through different processes or stages.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Operation Costing<\/strong> represents the costing in which each cost of each operation involved in an activity is ascertained separately.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Composite Costing<\/strong> is applied to ascertain the cost of complex products manufactured by the manufacturing concerns where no single method of ascertaining cost can be applied.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Departmental Costing<\/strong> is adopted where the factory is divided into several departments and it is desired to ascertain the cost of each department than the whole concern collectively.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>DISCLOSURE OF PROFITABLE AND UNPROFITABLE ACTIVITIES<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The accounting records prepared on the basis of cost\naccountancy discloses the cost incurred of each job, process or operation. It\nprovides the data to make a decision regarding the profitable and unprofitable\nactivities of the concern. This information provides a base to make a decision\nregarding which activity is to be contracted or eliminated and which activity\nis to be expanded. <\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>HELPS IN FIXATION OF SELLING PRICE<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Cost accounting provides all the details regarding the\nactual cost incurred in the production of the commodity. It provides the\nbusinessman with the sound basis for fixing the selling price of the commodity.\nThis protects the businessman from taking the wrong decision of charging fewer\nprices and incurring losses. <\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CALCULATION OF TENDER OR QUOTATION PRICE<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Tenders or quotations are made to provide the rate which\nwill be charged to supply the manufactured goods in future times. The cost data\nprovides a useful base to set the tender price. If the tenders are based on the\nactual cost data, they are bound to be competitive and sure to be accepted by\nthe prospective customer.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>DISCLOSES THE COMPONENTS OF COSTS<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">To manufacture a product, the cost is incurred on material,\nlabor and overheads. Cost accounting records<\/p>\n\n\n\n<ul><li>Wage rate payable to efficient or inefficient\nemployees<\/li><li>Material ordering costs<\/li><li>Material carrying costs<\/li><li>Overtime cost, etc<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">All this minute information assist the manufacturer to\nascertain the importance of each element of cost and determining where there is\ngreater scope for the economy.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>COST COMPARISON<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The accounting records of cost of one year can be compared\nwith the records of another year. The cost accounting system provides the\nreliable information to compare the costs of different periods, for different\nvolumes of output, in different departments or processes and in different\nestablishments.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>HELPS IN COST CONTROL<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Cost control is the guidance and regulation of the costs by\nthe administration and management authorities. It guides the organization to\nachieve the target of the undertaking for a given period. Cost control involves\nthe following steps:<\/p>\n\n\n\n<ul><li>Setting up the targets for expenses and production\nperformance<\/li><li>Measurement of the actual performance<\/li><li>Comparison of the actual performance with the\nstandard performance<\/li><li>Finding out deviations, if any<\/li><li>Taking corrective actions to remove all the\ndeviations.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">Cost control is done by following the various techniques:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Marginal Costing:<\/strong> It is a technique of cost accounting which pays attention to the behavior of costs with changes in the volume of the output.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Budgetary Control:<\/strong> It involves the establishment of budgets relating to the responsibilities of the executives to the requirements of the policy and the continuous comparison of the actual with the budgeted results, either to secure by individual action of that policy or to provide a basis for its revision.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Standard Costing:<\/strong> Standard costing discloses the cost of deviations from standards and classifies these as to their causes, so that management is immediately informed of the sphere of operations in which remedial action is necessary.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Variance Analysis:<\/strong> Variance analysis is a process of analyzing variances by sub-dividing the total variance in such a way that the management can assign the responsibility for off production performance. The main cost variances are: direct material variance, direct labor cost variance and overhead variance.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>HELPFUL IN PLANNING AND DECISION MAKING<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The various cost records maintained under the cost\naccounting system provide valuable information for the purpose of future\nplanning and for decision making. The costing records assist the management in\nmaking the following decisions:<\/p>\n\n\n\n<ul><li>Manufacture or buy decision.<\/li><li>Selection of the profitable product mix<\/li><li>Operate or shut down decisions<\/li><li>Selection of profitable method of production<\/li><li>Fixation of the selling price.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CHECK ON THE ACCURACY OF FINANCIAL ACCOUNTS<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Cost Accounting system provides an independent and most\nreliable check on the accuracy of financial accounts by means of reconciliation\nof profits as shown by cost accounts and financial accounts.<\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"limitations-of-cost-accounting\"><span class=\"ez-toc-section\" id=\"LIMITATIONS_OF_COST_ACCOUNTING\"><\/span><strong>LIMITATIONS OF COST ACCOUNTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"has-medium-font-size\">If the cost accounting system is not used with proper care and caution, then it proves to be unnecessary. So, some objections are raised against the use of the cost accounting which is as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide41.jpg\" alt=\"LIMITATIONS OF COST ACCOUNTING\" class=\"wp-image-2731\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide41.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide41-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide41-768x576.jpg 768w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>NOT AN EXACT SCIENCE<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Cost accounting is not an exact science. Although it has its\nown body of knowledge, principles, tools and techniques, yet it is not as rigid\nas other sciences like physics, chemistry, biology etc.&nbsp; The cost accounting has emerged due to the\nlimitations of financial accounting. The principles and theories developed in\nthe light of convention and basic principles are not static but changing with\nthe passage of time. This makes the cost accounting an inexact science.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>NO UNIFORM PROCEDURES AND METHODS<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">There are numerous tools and techniques of the cost\naccounting. Various organizations employ various techniques and the results are\ndifferent. This proves to a serious limitation of cost accounting as this makes\nthe results incomparable.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CONCEPTUAL DIVERSITY<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">There are large number of conventions and flexible factors\nsuch as <\/p>\n\n\n\n<ul><li>Classification of cost into its elements.<\/li><li>Issue materials on average or standard price.<\/li><li>Apportionment of overheads expenses.<\/li><li>Arbitrary allocation of joint costs.<\/li><li>Division of overhead into fixed and variable\ncosts.<\/li><li>Division of cost into normal and abnormal cost.<\/li><li>Division of costs into controllable and\nuncontrollable costs.<\/li><li>Adoption of marginal or standard costs.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">All this make the calculation of actual cost very difficult.\nIt proves as the serious limitation of cost accounting.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>EXPENSIVE<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The maintenance of cost accounting records is optional.\nThere is no legal obligation to prepare the cost accounts. At the same time,\nfor the preparation of cost accounting records, the cost and work accountants\nare required which proves to a costly affair for the business. So, the cost\naccounting system can be adopted or installed in large business organizations\nonly.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>LACK OF DOUBLE ENTRY SYSTEM<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Under cost accounting, a double entry system is not\ncompletely followed. So it is not possible to check the arithmetical accuracy\nof the transactions and locate the errors.<\/p>\n\n\n\n<p><strong>NOT AN INDEPENDENT BRANCH<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Cost accounting is not an independent branch. It depends\nlargely upon the financial accounting for all the information and data. Also it\ntakes the help of management accounting tools and techniques to provide the\nuseful information to serve the interests of the management. This makes the\ncost accounting dependent which proves as its limitation.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>DOES NOT DEPICT THE FINANCIAL POSITION OF CONCERN<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Cost accounting is associated with cost ascertainment, cost recording and cost control. It provides no information regarding the liquidity, solvency and profitability position of the concern. This makes it an incomplete accounting.<\/p>\n\n\n\n<p><strong>QUESTION COVERED<\/strong><\/p>\n\n\n\n<p>What is cost accounting? Why is it necessary? (Note: Write the need of cost accounting in necessity.)<\/p>\n\n\n\n<p>Explain the objectives (need) and advantages of cost accounting?<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/cost-accounting\/\">Cost Accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-cost-accounting-pdf\/\">Scope of cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/elements-of-cost\/\">Elements of cost<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/types-of-cost\/\">Types of cost<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/material-control-in-cost-accounting-pdf\/\">Material control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perpetual-inventory-system\/\">Perpetual inventory system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/pricing-of-materials\/\">Pricing of materials<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/bin-card\/\">Bin Card<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/store-ledger\/\">Stores Ledger<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/incentive-plans\/\">Incentive plans<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/overhead\/\">Overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-treatment-of-idle-time\/\">Idle time<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/system-of-wage-payment-in-cost-accounting\/\">System of wage payment in cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-time-rate-system-and-piece-rate-system\/\">Time rate vs piece rate wage system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-centre\/\">Cost Center<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/labor-turnover\/\">Labour Turnover<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Difference between management accounting and cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/allocation-and-apportionment-of-overheads\/\">Allocation and apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-allocation-and-apportionment-of-overheads\/\">Allocation vs Apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/absorption-of-overheads\/\">Absorption of overheads<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/over-absorption-and-under-absorption-of-overheads\/\">Over absorption and under absorption of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/activity-based-costing\/\">Activity based costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-traditional-costing-and-activity-based-costing\/\">Traditional costing vs ABC system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/reconciliation-of-accounts\/\">Reconciliation of accounts<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/unit-costing\/\">Unit costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-format\/\">Cost sheet format<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-vs-production-account\/\">Cost sheet vs production sheet<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/job-costing\/\">Job costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/batch-costing\/\">Batch Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-batch-costing\/\">job costing vs batch costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/contract-costing\/\">Contract costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-contract-costing\/\">Job Costing vs Contract costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/process-costing\/\">Process Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-costing-vs-job-costing\/\">Process costing vs job costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/joint-products\/\">Joint products<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/by-products\/\">By Product&nbsp;<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/equivalent-production\/\">Equivalent production<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/marginal-costing\/\">Marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/applications-of-marginal-costing\/\">Application of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-volume-profit-analysis\/\">Cost volume profit analysis<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/tools-and-techniques-of-marginal-costing\/\">Tools and techniques of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budget\/\">Budget<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/break-even-point\/\">Break even point<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-of-budgetary-control\/\">Process of budgetary control<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explain-the-advantages-and-limitations-of-budgetary-control\/\">Advantages and limitations of budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budgetary-control\/\">Budgetary Control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/zero-base-budgeting\/\">Zero base budgeting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/standard-costing\/\">Standard Costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/variance-analysis\/\">Variance Analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-standard-costing-and-budgetary-control\/\">Standard costing vs budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Management accounting vs cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-financial-accounting-management-accounting-and-cost-accounting\/\">Cost accounting vs financial accounting<\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"512\" height=\"152\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-cropped-Presentation-resize-1.jpg\" alt=\"Difference between Financial Accounting Management Accounting and Cost accounting\" class=\"wp-image-4836\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-cropped-Presentation-resize-1.jpg 512w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-cropped-Presentation-resize-1-300x89.jpg 300w\" sizes=\"(max-width: 512px) 100vw, 512px\" \/><figcaption>COST ACCOUNTING<\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>COST ACCOUNTING Cost Accounting is an art or process of recording, analyzing and classifying of expenditure for the purpose of product costing or service costing, ascertainment of profitability, operational planning and cost control. It is a forward looking approach which is related to the recording, analyzing and classifying of expenditure with the objective of ascertaining&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/cost-accounting\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;COST ACCOUNTING&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":2720,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[187],"tags":[53,188],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2719"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=2719"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2719\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/2720"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=2719"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=2719"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=2719"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}