What are the Objectives of Cost Accounting?
Cost accounting is the process of the more efficient workers analysed various recordings and expenditures. However, the objectives of cost accounting are much more profound. Cost accounting helps a company to check a large part of finances and expenditure. All large business organisations have experts for cost accounting who execute the job and ensure the cost-related data remains transparent. Here you can study the main objective of cost accounting. Go through the following write-up to understand why the process is important and needs to be done at regular intervals. Proper cost accounting is also important because it helps to maintain a balance between the management team and the wagers of the company.
The Importance of Cost Accounting
It is one of the important business techniques used in this modern commercial world. It is beneficial to the workers and also for the authority. It has many advantages, and it is beneficial to different parties like clients, stakeholders, investors, employees and government. This is also beneficial to consumers. The concept of cost accounting focuses on profit or loss of individual processes, materials and labours.
Cost accounting involves the classification of costs, and it helps the management to control the costs. There are also several types of costs like direct cost, selling cost, factory cost, prime cost, etc. It also helps to discover the profits and helps in calculating efficiency.
A successful business emphasises controlling investment costs, labour costs and other costs. Cost accounting helps them in it. It supports machinery costs and their efficiency more than labour costs.
Fixed and variable costs are distinguished by cost accounting. This enables management to fix the price of products keeping in mind the cost of products. This helps in determining the ideal price and moderate price. During the financial crisis, a successful businessman cuts down on variable costs.
Cost accounting also helps to frame the budget for the future. This leads to the measurement of efficiency of that unit or department.
Cost accounting is beneficial to workers also as it is involved in calculating efficiency. Therefore, the workers who are more efficient are rewarded with incentives and also boost their confidence. It also creates healthy competition.
The government also benefited from cost accounting through income tax. It helps in setting industry standards and also with the fixing of price.
Cost accounting focuses on cutting down the costs and improving efficiency which may benefit the company. This leads to the benefit of customers with the products and services.
Top Objectives of Cost Accounting
It is easy to explain the objectives of cost accounting with respect to some aspects of business organisations. They are as follows:
Fixing Selling Price
Cost accounting allows managers to understand the cost of each product. With the right data of cost accounting, the organisation can fix a particular selling price per unit of production. In case an organisation deals with a particular service, they can fix the charges for it rightly.
Making a Foundation of Total Cost
Making a foundation of cost is the main objective of cost accounting. With the help of a specific foundation of the cost, a company can understand the level of production it can do at a time. Moreover, it can divide the total cost and theoretically fragmentise the capital into different sections of productions like job, process, organisation, etc.
Determining the Profitable Products
As per the aims of cost, accounting is concerned. It helps an organisation to understand profitable products. If a company deals with several products, it can run a session of cost accounting and select the specific ones that give proper profits. This way, it can minimise the chances of a loss.
Controlling Costs Becomes Easier
The managerial team for a specific business organisation can control the overall costs as per the outcomes of cost accounting. Generally, every business organisation executes this process on a quarterly or yearly basis to determine the exact cost of the overall production. It can also save a lot by putting the necessary amount in a sector only.
Handle Bonus Plans in an Organisation
The best way to keep the daily wagers in peace and expect high-end production from them is by providing bonuses to them. Apart from bonuses, companies can also give other types of perks time-to-time. When we discuss cost accounting and its objectives, we need to understand that it helps an organisation to calculate the bonus amount and distribute it among the workers.
Helps in Proper Decision-making
Decision-making is a vital attribute on which the fate of a business organisation depends. Cost accounting results act as first-hand information depending on which the board can decide the future moves of the company,
The managerial board of a specific organisation has the right to make decisions about the productions of a company as they are experienced and know the production style of the company.
Every business organisation has to make statements for keeping records. It is one of the main objectives of cost and management accounting to provide all necessary data to the company as they are able to make the statement of production at a specific time.
Making statements is important for another reason as it minimises the chances of fraud and mistakes in the company. One can easily show the statements as proof that everything is perfect in the company.
To Enhance Communication Among Departmental Managers
When the management team organises a cost accounting session, the managers of different departments communicate with each other for the statements and other documents. So, it acts as one of the positive attributes of the company. It can enhance the inter-relation between the various departments of the company.
FAQs on Objectives of Cost Accounting
1. What are the Scopes of Cost Accounting in the Company?
There are some essential scopes of cost accounting that you need to know. They are-
Accounting Every Cost
When cost accounting takes place, the cost-related data from all the departments are taken into account. So, it becomes easy to understand if all the departments are working correctly. All organisations use the results to take further business decisions. However, they recheck the data several times to check if every entry is correct.
Ascertainment of Cost
Ascertainment is the best thing that a company can execute with the help of cost accounting. It can allow the management team to analyse future data with historical data related to costs.
Controlling the Cost
Cost controlling is another thing that the executives can initiate theoretically with the help of cost control.
2. What are the Vitalities to Apply Cost Accounting in Business?
In the case of a small business, the proprietors can easily look after the monetary transactions. However, it is different from large businesses. Cost accounting is vital in the case of large enterprises as all the productions are made in bulk. In such a case, the business owner can't control the costs. The best thing an organization can do is carry out not only the cost accounting but all other accounting processes more frequently. This not only promotes transparency in a company but also keeps all the departments active. The best way cost accounting can take place is on a quarterly or yearly basis.
3. How does cost Accounting benefit the investors?
Cost Accounting helps in controlling the costs and increases efficiency. It also helps in framing the budget of the unit or department for the future. It promotes a healthy work environment by rewarding the employees. It helps in analysing the previous year budget, profit and helps in preparing a strategy for the upcoming years. All the factors contribute to the sound costing system. Investors always check the costing system of the company before investing in it. The Costing system influences their decision making. All these positive factors give a positive impression on the investors.
4. How does cost accounting play a vital role in the modern business world?
Cost accounting is one of the important techniques and it is beneficial to management, employees, government and stakeholders. Cost accounting also helps to frame the budget for the future. This leads to the measurement of efficiency of that unit or department. Cost accounting is beneficial to workers also as it is involved in calculating efficiency. Therefore, efficient workers are rewarded with incentives and also boost their confidence. It also creates healthy competition. The government also benefited from cost accounting through income tax. It helps in setting industry standards and also with fixing the price. Cost accounting also helps to frame the budget for the future. This leads to the measurement of efficiency of that unit or department. It helps the management to fix the price of the products in considering production cost. It minimizes fraud and illegal activities in the company. Hence it plays a vital role.
5. Differentiate between financial accounting and cost accounting.
The differences between financial accounting and cost-accounting are discussed in detail here.
It summarises the financial data.
It summarises cost information and data.it includes information about labour, materials, etc.
It can be used by both internal and external users.
This information is meant only for the users within the firm like management, employees, etc.
It is mandatory and every organisation has to record financial transactions.
Manufacturing firms do cost accounting. It is not mandatory for all firms.
It provides the profit or loss of the whole business. The entire business is concerned here.
It provides the profit or loss for products, individual processes, etc.
There is no scope for forecasting
Here, there is a possibility for forecasting