Objectives Of Cost Accounting

Objectives Of Cost Accounting

The objectives of cost accounting are ascertained of cost, fixation of selling price, proper recording and presentation of cost data to management for measuring efficiency and for cost control.  The aim is to know the methods by which expenditure on materials, wages and overheads is recorded, classified and allocated so that the cost of products and services may be accurately ascertained; these costs may be related to sales and profitability may be determined.  Yet with the development of business and industry, its objectives are changing day by day.  The following are the main objectives of cost accounting:

• To ascertain the cost per unit of the different manufactured by a business concern;
• To provide a correct analysis of cost both by process or operations and by different elements of cost;
• To disclose sources of wastage whether of material, time or expense or in the use of machinery, equipment and tools and to prepare such reports which may be necessary to control such wastage;
• To provide requisite data and serve as a guide for fixing prices of products manufactured or services rendered;
• To advise management as to how these profits can be maximized and to ascertain the profitability of each of the products;
• To exercise effective control of stocks of raw materials, work-in-progress, consumable stores and finished goods in order to minimize the capital locked up in these stocks;
• To reveal sources of economy by installing and implementing a system of cost control for labour, overheads and materials;
• To advise management on proposed capital projects and future expansion policies;
• To present and interpret data for management planning, evaluation of performance and control;
• To help in the implementation and preparation of budgets of budgetary control;
• To organize an effective information system so that different levels of management may get the required information at the right time in right form for carrying out their individual responsibilities in an efficient manner;
• To guide management in the implementation and formulation of incentive bonus plans based on cost savings and productivity;
• To supply useful data to management for taking various financial decisions such as introduction of new products, replacement of labour by machine etc;
• To help in supervising the working of punched card accounting or data processing through computers;
• To organize the internal audit system to ensure effective working of different departments;
• To organize cost reduction programmes with the help of different departmental managers;
• To provide specialized services of cost audit in order to prevent the errors and frauds and to facilitate prompt and reliable information to management.

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