Objectives of the cost accounting

The Objectives of the cost accounting are ascertain of costs, fixation of selling prices, proper recording and presentation of cost data to the management for measuring efficiency and for cost control. The aim is to know the methods by which expenditure on the materials, wages and overhead 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 the business and industry, its objectives are changing day by day. The following are the main objectives of the cost accounting.

1. Analysis and ascertain of costs: the main objects of costing is to ascertain the cost of each product, process, department, service or operation. For the ascertainment of cost it involves further the study, analysis and classification of costs such as prime cost, work cost, production cost etc, various systems and techniques of costing have been developed for the purpose of recording and determining costs.

2. Cost control: cost control is one of the important functions of cost accounting. To measure the efficiency of the organization or of the cost centres, the various operations involved in the manufacture of the products are to be carefully studied. Budgets and standards for the consumption of materials, use of labour, and for expending the overhead are to be set and compared with the actual performances. The variations arising out of the comparison so made tell the tale whether the cost is within control or not.

3. Ascertainment of profitability: it is the object of cost accounting to ascertain the profitability of the activities carried out or planned. If a new product is introduced for manufacturing one generally tries to find out the profits that can be earned from the product. Same applies to the activity being carried out presently in the factory.

4. Determination of selling price: the supply price or or the tender price of a product depends upon its total cost plus a margin which the business man wants to make depending upon the inter play of factors of demand and supply. Cost accounting provides detailed information about the composition of total cost for the determination of the selling price, it also provides information to decide the cost volume the extent to which the prices can be reduced to meet the challenge arising out of competition, by the costs into the variable and fixed.

5. Providing a basis for business policy: the objective of cost accounting is to help the management in the formulation of the business policy and in decision making. The gross profit analysis, the cost volume profit relationship, the breakeven point of sales, and the differential costing method, etc help the management in the profit planning and in deciding crucial matters.