Erbil Polytechnic University

Erbil Aministrative Technical

College Business Management Department

Cost Accounting

Prepared By: Supervisor By:

Xozga Najat Dr.Nawzad
Majed

2023-2022
 content
Introduction
Objectives of Cost Accounting
Example of Objectives of Cost Accounting
Objections Against Cost Accounting:
General Principles of Cost Accounting:
Reference
 Introduction
Cost Accounting refers to the classifying, recording and
appropriate allocation of expenditure for the purpose of
determining the costs of products or services. It also helps in
the presentation of arranged data for the control purposes and
guidance to the management. Cost accounting deals with the
production, selling and distribution costs. It involves the
ascertainment of the cost of every job, order, product, process
or service. Here, we shall discuss the various Objectives of
Cost Accounting.
 Objectives of Cost Accounting
The objective of the cost accounting is to determine the
methods by which expenditure on materials, wages and
overhead are recorded, classified and allocated. This is
necessary so that the

1. cost of products and services may be accurately

ascertained. Thus, the following are the main objectives of
cost accounting:
2. Ascertainment of the cost per unit of the different products
that a business concern manufacturers.
3. To correctly analyze the cost of both the process and
operations.
4. Disclosure of sources for wastage of material, time,
expenses or in the use of the equipment and the preparation
of reports which may be necessary to control such wastage.
5. Provide requisite data and help in fixing the price of
products manufactured or services rendered.
6. Determination of the profitability of each of the products
and help management in the maximization of these profits.
7. Exercise effective control of stocks of raw material, work-
in-progress, consumable stores, and finished goods so as
to minimize the capital invested in them.
8. Present and interpret data for management planning,
decision-making, and control.
 9. Help in the preparation of budgets and implementation of
budgetary control.
10. Aid management in the formulation and implementation
of incentive bonus plans on the basis of productivity and
cost savings.
11. Organization of cost reduction programmes with the help
of different departmental managers.
12. To provide specialized services for cost audit in order to
prevent errors and frauds.
13.To facilitate prompt and reliable information to
management.
14.Determination of costing profit or loss by linking the
revenues to costs of those products or services by selling
which the revenues have arisen.
Example of Objectives of Cost Accounting

Q. Explain the scope or functions of cost accountancy?

The scope or functions of cost accountancy are:

Cost Ascertainment

Cost Accountancy collects and analyses the expenses,

measures the production of products at different stages of
manufacture and the links up of production with the
expenses. It thus calculates or ascertains the Historical or
Actual costs, estimated costs, standard costs, etc.It also
uses the different techniques of costing such as marginal
cost technique, the total cost technique, direct cost
technique, etc. to link the production with expenses.

Cost Accounting

Cost Accountancy is the process of accounting for cost. It

begins with the recording of expenditure and ends with
the preparation of statistical data. Cost Accounting
formal mechanism of ascertaining and controlling the
costs of products or services.It is thus helpful to the
management in decision making which also requires the
costing information. However, if a firm keeps cost and
financial accounts separately then their reconciliation is
also necessary so as to verify the accuracy of both sets of
accounts.

Cost control

Cost control refers to the

regulation of the costs of
operating an undertaking. It
involves guiding the actual
costs towards the line of targets and regulating the actual
in case they deviate or vary from the targets.Cost control
is done by executive action. The organization can control
costs by means of standard costing, budgetary control,
proper presentation and reporting of cost data and cost
audit.
Objections Against Cost Accounting:

A number of objections are generally raised against the

introduction of costing on various grounds.
Following are some of the important objections usually
raised:
1. Want of Necessity:
It has been argued that costing is of recent origin and that
industries prospered in the past and are still prospering
without the aid of costing and, therefore, expenditure
incurred in installing a costing system would be an
unnecessary expenditure.This argument overlooks the
fact that modern industries are running under highly
competitive conditions and that every manufacturer
should know the actual cost of production to decide how
far he can reduce the selling price. Many industrial
failure.’ in the past may be attributed to the lack of
knowledge on the part of manufacturer of actual cost of
production and, therefore, selling products below cost.
2. Inapplicability:
It is argued that modern methods of costing are
inapplicable to many types of industries. It is true that
costing cannot be applied with advantage to trading
concerns and concerns of small size. But in many cases
some methods of costing can always be devised to suit
the requirements of the business.

3. Failure in Many Cases:

It is argued that the adoption of costing system failed to
produce the desired results in many cases and, therefore,
the system is defective. The failure of a system may be
due to several causes such as apathy or indifference of
management, lack of adequate facilities, non-co-
operation or opposition from the employees. So it is hasty
to find fault with the
system, if it fails to
produce the desired
results.
4. Mere Matter of Forms and Rulings:

It is argued that after some time, a costing system

degenerates into a matter of forms and rulings. This is not
the fault of the system. It is the fault of the way in which
the system is maintained. Forms and rulings are essential
for a costing system but they must be revised and brought
up-to-date in the light of altered conditions. If this is not
done, the system is bound to degenerate into a mere
matter of forms and rulings.

5. Expensive:

It is said that the cost involved in installing and working

a cost system is out of all proportions to the benefits
derived therefrom. It may be stated in this connection that
a costing system must be a profitable investment and
should produce benefits commensurate with the
expenditure incurred on the system. If care is taken to
devise a costing system to suit the requirements of the
industry and avoid unnecessary elaboration, expenditure
incurred in installing and operating the system will be a
profitable investment and will bring adequate return.
General Principles of Cost Accounting:

Following are the main principles of Cost Accounting:

1. Cause-Effect Relationship:
Cause-effect relationship should be established for each
item of cost. Each item of cost should be related to its
cause as minutely as possible and the effect of the same
on the various departments should be ascertained. A cost
should be shared only by those units which pass through
the departments for which such cost has been incurred.

2. Charge of Cost Only after its Incurrence:

ADVERTISEMENTS:
Unit cost should include only those costs which have
been actually incurred. For example unit cost should not
be charged with selling cost while it is still in factory.

3. Past Costs Should not Form Part of Future Costs:

Past costs (which could not be recovered in past) should
not be recovered from future costs as it will not only
affect the true results of future period but will also distort
other statements.

4. Exclusion of Abnormal Costs from Cost Accounts:

All costs incurred because of abnormal reasons (like
theft, negligence) should not be taken into consideration
while computing the unit cost. If done so, it will distort
the cost figures and mislead management resulting in
wrong decisions.

5. Principles of Double Entry Should be Followed

Preferably:
To lessen the chances of any mistake or error, cost
ledgers and cost control accounts, as far as possible,
should be maintained on double entry principles. This
will ensure the correctness of cost sheets and cost
statements which are prepared for cost ascertainment and
cost control.
Reference
https://www.toppr.com/guides/
fundamentals-of-accounting/fundamentals-
of-cost-accounting/objectives-of-cost-
accounting/
https://www.yourarticlelibrary.com/cost-
accounting/cost-accounting-meaning-
objectives-principles-and-objections/5521