What is Cost Accounting? – Objectives & Importance of Cost Accounting

Definition of Cost accounting

Cost accounting is a specialized branch of accounting which involves classification, accumulation, assignment and control of costs. It is a formal mechanism by means of which costs of products or services are ascertained and controlled.

General Principles of Cost Accounting

  • A cost should be related to its cause
  • A cost should be charged after it has been incurred
  • Abnormal costs (accidents, negligence etc.) Should be excluded from cost accounts.
  • Past costs should not to be charged to future period.
  • The convention of prudence should be ignored.

Objectives of Cost Accounting

  • To analyze and classify all expenditures with reference to cost of products and operations
  • To reach at the cost of production of every unit.
  • To examine the efficiency of plant and machinery.
  • To indicate the management about any inefficiencies.
  • For the comparison of actual cost to the cost of production ought to be.
  • To provide data for periodical profit and loss accounts and balance sheets
  • To enable the management to make short-term decisions of various types such as quotation of price to special customers, assigning priorities to various products.

Importance of Cost Accounting

  • Cost accounting helps in price fixation.
  • It estimates wastage in production
  • It helps in inventory control
  • It provides data for periodical profit and loss accounts and balance sheets.
  • Cost accounting makes it easy to make comparisons
  • Costing as an Aid to Creditors & Employees.