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WHAT IS COST ACCOUNTING?

The cost accounting is the method of collecting information about costs incurred by the  company's activities,  assigning the selected costs to the products and the services and the other cost objects, and evaluating efficiency of the cost usage. The Cost accounting is mostly concerned with the developing an understanding of where a company earns and loses the oney, and providing the input into the decisions to produce profits in future.

Key activities include:

1)Defining costs as the direct materials, fixed overhead, direct labor, period costs and variable overhead.

2)Supporting engineering and the procurement departments in generating the standard costs, if a company uses the  standard costing system.

3)Using an portion methodology to assign all the costs except period costs to the products and the services and the other cost objects.

4)Defining transfer of prices at which the components and the parts are sold from one subsidiary of a parent company to the another subsidiary.

5)Examining the costs incurred in the relation to activities conducted, to see if a company is using its resources efficiently.

6)Highlighting any changes in tendency of a range of costs incurred.

7)Analyzing the costs that will modify as the result of the business decision.

8)Evaluating requirement for the capital expenditures.

9)Building a budget model that predicts the changes in the costs based on the expected activity levels.

10)Analyzing system of the production to understand where the bottlenecks are positioned, and how they force throughput generated by entire manufacturing system.

There are a multitude of the tools that t cost accountant uses to accumulate and the interpret costs, including the job costing, standard costing, the process costing, throughput analysis, activity-based costing and the direct costing.

The cost accounting is a source of the information for financial statements, especially in regard to valuation of the inventory. However, it is not directly involved in generation of the financial statements.

IMPORTANCE OF COST ACCOUNTING

1.Importance to management: The management is highly benefitted with introduction of the cost accounting. It helps to the  ascertain cost and the selling price of product. The Cost data help the management to create business policies. The introduction of the budgetary control and the standard cost would be an aid to analyze the cost. It is also helps to find out the reasons for the profit or loss. It provides data to submit the tender as well. Thus, the cost accounting is an aid for the management.

2. Importance to investors: The investors can obtain the benefit for the cost accounting. The investors want to know financial conditions and the earning capacity of a business. An investor must assemble the information about the organization before making the investment decision and the investor can gather such type of information from the cost accounting.

3.Importance of consumers: The crucial aim of the costing is to reduce cost of production to minimize profit of the business. Reduction in cost is typically passed on consumers in form of the lower price. The Consumers get the quality goods at the lower price.

4.Importance to Employees: The Cost accounting helps to fix wages of workers. The efficient workers are rewarded for their competence. It helps to induce the incentive wage plan in the business.

OBJECTIVES OF THE COST ACCOUNTING

1.The cost finding.

2.The cost planning and the controlling process.

3.Cost analysis for the managerial decision.

ADVANTAGES OF COST ACCOUNTING

1.Help in the Cost control process.

2.Cost accounting help in the decision making process.

3.It guides in the Price fixation.

4.Cost accounting also help in the cost reduction.

5.It finds outs the profitable and the unprofitable operations.

6.It is also finds out the idle capacity.

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