HIMACHAL PRADESH NATIONAL LAW

UNIVERSITY , SHIMLA

MANAGEMENT ACCOUNTING ASSIGNMENT

THE ROLE OF COST ACCOUNTING TECHNIQUES IN
ACHIEVING EFFECTIVE COST CONTROL

SUBMITTED TO- SUBMITTED BY-

Dr. Deepika Gautam Ananya Kalia
Assistant Professor 1120202119
BBA LLB (Hons.)
3rd semester

ACKNOWLEDGEMENT

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It is not possible to prepare a project without the assistance and encouragement of other
people . This one is certainly no exception .

On the very onset of this assignment , I would like to extend my sincere and heartful
obligation towards all the people who have helped me in this endeavour . Without their active
guidance , help, corporation and encouragement , I would not have made headway in the
assignment .

I am ineffably indebted to Dr. Deepika Gautam for conscientious guidance and

encouragement to accomplish this assignment . I am extremely thankful and pay my gratitude
to him for his valuable guidance and support on completion of this project in its presently .
I extend my gratitude to Himachal Pradesh National Law University for giving me this
opportunity.

I also acknowledge with a deep sense of reverence , my gratitude towards my parents and
members of my family , who have always supported me .
At last but not least gratitude goes to all of my friends who directly or indirectly helped me to
complete this project .
Any omission in this brief acknowledgement does not mean lack of gratitude .

DECLARATION

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I , Ananya Kalia , hereby declare that this project titled THE ROLE
OF COST ACCOUNTING TECHNIQUES IN ACHIEVING
EFFECTIVE COST CONTROL is the result of my original
research work conducted under the supervision of Dr. Deepika
Gautam , Assistant Professor , Himachal Pradesh National Law
University , Shimla . In all the instances where some other work has
been cited , full acknowledgement has been given . This work has
never been submitted , in the whole or in part , in any institution for
any award(s).

NAME OF STUDENT
ANANYA KALIA
DATE -08th November 2021

INTRODUCTION

Cost is the amount of resource given up in exchange for some goods or services. The
resources given up are money or money’s equivalent expressed in monetary units. The

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Chartered Institute of Management Accountants, London defines cost as “the amount of
expenditure (actual or notional) incurred on, or attributable to a specified thing or activity ”.
This activity of a firm could be the production of a product or the provision of a service, both
of which require expenditures under numerous headings, such as materials, labour, and other
costs. A manufacturing company is interested in determining the cost per unit of the product
it produces, whereas a service company, such as a transportation company, canteen, electrical
provider, or municipality, is interested in determining the price of the service it provides. The
cost per unit is calculated by dividing the total expenditure by the total units generated or the
amount of service delivered in its most basic form. However, if the manufacturer just makes
one type of product, this strategy can be used. If a firm produces multiple items, it is
necessary to divide the total spending among them so that each product's cost may be
determined independently. Even if just one product is produced, it may be important to
examine the cost per unit of each expenditure item that contributes to the total cost. When a
large number of products are created, the situation gets more complicated, and it is required
to break down the cost per unit of each product into multiple expenditures that make up the
entire cost.
For a consumer cost means price. For management cost means 'expenditure incurred' for
producing a particular product or rendering a particular service. The process of ascertaining
the cost is known as costing. It consists of principles and rules governing the procedure of
finding out the costs of goods/ services. It aims at ascertaining the total cost and also per unit
cost. For instance, in transport companies the total cost for the period is ascertained and used
to find out the cost per passenger/mile. i.e. the cost of carrying one passenger for one mile. It
provides for analysis of expenditure in such a way that the management gets complete idea
about even the smallest item of cost.
The method of determining cost is known as costing techniques. These strategies are made
up of ideas and regulations that control the process of determining a product's or service's
cost. The strategies to be used for analysing expenses and procedures for various items range
from one industry to the next. The primary goal of costing is to analyse financial data in order
to split expenditure and properly assign it to designated cost centres, resulting in a total cost
for the items.

COST ACCOUNTING –
Cost accounting may be regarded as ``a specialised branch of accounting which involves
classification, accumulation, assignment and control of costs.

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 The Costing terminology of C.I.M.A. London defines cost accounting as ``The establishment
of budgets, standard costs and actual costs of operations, processes, activities or products,
and the analysis of variances, profitability or the social use of funds”.
`Wheldon defines cost accounting as “classifying, recording and appropriate allocation of
expenditure for determination of costs of products or services and for the presentation of
suitably arranged data for purposes of control and guidance of management”.
It is thus, a formal mechanism by means of which costs of products or services are
ascertained and controlled. Cost accounting is different from costing in the sense that the
former provides only the basis and information for ascertainment of costs. Once the
information is made available, costing can be carried out arithmetically by means of
memorandum statements or by method of integral accounting.
Cost accounting aims at systematic recording of expenses and analysis of the same so as to
ascertain the cost of each product manufactured or service rendered by an organisation.
Information regarding cost of each product or service would enable the management to know
where to economise on costs, how to fix prices, how to maximise profits and so on
Objectives of cost accounting-
The main goals of cost accounting are as follows: -
(a) Determine costs in various situations using various costing methodologies and systems
(b) Determine selling prices in various situations
(c) Determine and regulate efficiency by establishing standards for Materials, Labor, and
Overheads
(d) To determine the value of closing inventory for the purpose of preparing financial
statements for the company.
(e) To provide a foundation for operating policies, such as determining the Cost Volume
Relationship, deciding whether to close or operate at a loss, deciding whether to manufacture
or buy from the market, and deciding whether to keep the existing method of production or
replace it with a better one.
Importance of cost accounting –
1. For the MANAGEMENT-
Management can benefit greatly from cost accounting. It gives thorough costing
information to management in order for them to keep efficient control over stores and
inventory, improve the organization's productivity, and reduce wastage and losses. It
makes delegating responsibilities for essential tasks and staff evaluations easier. For
all of these reasons, management must be capable of properly utilising the
information offered by cost accounts.
1. Cost accounting aids in times of trade depression and competitiveness - During times
of trade depression, the company cannot afford to have unmanaged losses. Management must
be aware of areas where savings may be made, waste can be removed, and efficiency can be
improved. Not only does the organisation have to fight for existence, but it also has to fight

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for future expansion. Before embarking on any price-cutting programme, management should
have a clear understanding of the true cost of their products. This is made easier by having a
good costing system in place.
2.Cost accounting aids price fixation - Although the law of supply and demand to a great
extent determines the price of the article, cost to the producer does play an important role.
The producer can take necessary guidance from his costing records in case he is in a position
to fix or change the price charged.
3. Cost accounting helps in making estimates - Adequate costing records provide a reliable
basis for making estimates and quoting tenders.
4. Cost accounting helps in channelising production on right lines - Proper costing
information makes it possible for the management to distinguish between profitable and non-
profitable activities. Profits can be maximised by concentrating on profitable operations and
eliminating non-profitable ones.
5. Cost accounting eliminates wastages - As cost accounting is concerned with detailed
break-up of costs, it is possible to check various forms of wastages or losses.
6. Cost accounting makes comparisons possible - Proper maintenance of costing records
provides various costing data for comparisons which in turn helps the management in
formulation of future lines of action.
7. Cost accounting provides data for periodical profit and loss account - Adequate
costing records provide the management with such data as may be necessary for preparation
of profit and loss account and balance sheet at such intervals as may be desired by the
management.
8. Cost accounting helps in determining and enhancing efficiency - Losses due to
wastage of materials, idle time of workers, poor supervision, etc., will be disclosed if the
various operations involved in the production are studied carefully. Efficiency can be
measured, costs controlled and various steps can be taken to increase the efficiency.
9. Cost accounting helps in inventory control - Cost accounting furnishes control which
management requires in respect of stock of materials, work-in-progress and finished goods.
2. As aid to the CREDITORS-
Investors, banks and other money lending institutions have a stake in the success of the
business concern and are, therefore, benefited immensely by the installation of an efficient
system of costing. They can base their judgment about the profitability and future prospects
of the enterprise on the costing records.
3.For the EMPLOYEES-
Employees have a vital interest in their employer’s enterprise in which they are employed.
They are benefited by a number of ways by the installation of an efficient system of costing.
They are benefited, through continuous employment and higher remuneration by way of
incentives, bonus plans, etc.
4.For the NATIONAL ECONOMY –

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An efficient costing system benefits the firm, which leads to an increase in government
revenue. As a result of increased production efficiency, a country's total economic
development occurs. Controlling costs and eliminating waste and inefficiencies resulted in
the advancement of the industry and, as a result, the nation as a whole.

TECHNIQUES OF COSTING-
The following techniques of costing are used by the management for controlling costs and
making managerial decisions:
1. Historical / Conventional costing –
It is the process of determining costs after they have been incurred. It indicates that
the cost of a thing can only be calculated after it has been manufactured. This system
is just good for calculating expenses; it is not useful for controlling costs. Only if the
conditions remain the same in the future can it be used as a guide for future output.

2. Standard Costing-
It refers to the process of preparing standard costs and using them to measure and
analyse deviations from standard costs in order to maintain optimal production
efficiency. In this situation, the expenses of each piece are calculated ahead of time
under current and projected conditions, but they are also calculated ahead of time
under normal or ideal conditions. The actual expenses are then compared to the pre-
determined costs, and variances, also known as deviations, are recorded. After that,
the causes of the discrepancies are determined, and the required steps are taken to
prevent them from happening again.

3. Marginal Costing-
It refers to the ascertainment of marginal costs by differentiating between fixed costs
and variable costs and the effect on profit of the changes in volume or type of output.
In this case, only the variable costs are charged to products or operations while fixed
costs are charged to profit and loss account of the period in which they arise.

4. Uniform Costing -
A technique where standardized principles and methods of cost accounting are
employed by a number of different companies and firms, is termed as uniform
costing. This helps in comparing performance of one firm with that of another.

5. Direct Costing-
The practice of charging all direct costs to operations, process or products leaving all
indirect costs to be written off against profits in the period in which they arise, is
termed as direct costing.

6. Absorption Costing –
The practice of charging all costs both variable and fixed to operation, process or
products or process is termed as absorption costing.
7. Activity Based Costing –

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 Activity-Based Costing (ABC) is a way of assigning the organization's resource costs to
the products and services delivered to its consumers in a commercial organisation. It is
defined as a method of allocating costs to cost units based on the benefits derived from
indirect operations such as ordering, setting up, and ensuring quality. ABC entails identifying
expenses associated with each cost-driving activity and using that information to allocate
costs among different goods or jobs based on the number of activities required to complete
them. It is mostly used to allocate overhead expenditures in an organisation with goods of
varying volumes. The overhead costs of the organisation are recognised with each activity
that acts as a cost driver, or the source of overhead cost incurrence, using this technique.
Purchase orders, quality inspections, maintenance requests, material receipts, inventory
movements, electricity consumed, machine time, and so on are examples of cost drivers.
After determining the overhead expenses associated with each cost centre, the cost per unit of
cost driver may be calculated. Overhead costs can be allocated to jobs based on the number
of actions necessary to complete them. This is usually used to figure out how much a product
or a consumer costs and how much money they make. As a result, ABC has primarily been
used to support strategic decisions such as pricing, outsourcing and identification and
measurement of process improvement initiatives.
ABC principles are used: (i) to focus management attention on the total cost to produce a
product or service, and (ii) as the basis for full cost recovery. Support services are particularly
suitable for activity-based resourcing because they produce identifiable and measurable units
of output.
Activity-Based Costing encourages managers to identify which activities are value added—
those that will best accomplish a mission, deliver a service, or meet a customer demand. It
improves operational efficiency and enhances decision-making through better, more
meaningful cost information.

Cost Control -
Cost Control is defined as the regulation by executive action of the costs of operating
an undertaking, particularly where such action is guided by Cost Accounting.

Cost control involves the following steps and covers the various facets of the
management:
 Establishing strategies / targets is the first step in cost control. Budgets, standards,
forecasts, and even past actuals can be used to convey the plan/target in both
physical and monetary terms. These act as benchmarks against which the targeted
goal can be measured.
 Communication: The management's plan and policies are communicated to all
individuals who are accountable for carrying them out. Communication is
established in two directions: higher-level management issues directives to lower-
level executives for compliance, and lower-level executives report on their
performance to the higher-level executives.
 Motivation: The plan is put into action, and performances begin. The
performance is assessed, the costs are calculated, and data on the accomplished
results is collected and reported. The idea that costs are being tallied in order to

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 assess performance functions as a motivator, encouraging people to strive for
higher levels of performance.
 Appraisal and Reporting: Actual performance is compared to a predetermined
plan, and variances, or deviations from the plan, are investigated to find their
causes. Variances are reported to the appropriate management level.
 Decision Making: The variances are reviewed and decisions taken. Corrective
actions and remedial measures or revision of the target, as required, are taken.

Advantages of Cost Control-

The advantages of cost control are mainly as follows
(i) Achieving the expected return on capital employed by maximising or
optimizing profit
(ii) Increase in productivity of the available resources
(iii) Reasonable price of the customers
(iv) Continued employment and job opportunity for the workers
(v) Economic use of limited resources of production
(vi) Increased credit worthiness
(vii) Prosperity and economic stability of the industry

HOW DOES COST ACCOUNTING TECHNIQUES HELP IN COST CONTROL?

Cost accounting allows for the following:

1. Cost Accounting Allows a Company to Budget-

When a business has a better idea of exactly how its money is being spent, it can better
budget for the future. A company’s accountant is typically already aware of the business’s
fixed costs (utilities, rent, property taxes, etc.), but it’s variable costs (such as labor and raw
materials) change with output. Those costs need to be tracked and estimated for, for the
creation of the next budget. As well, the business will want to know that the money being
spent now is being done in ways that help maximize the company’s profit.

2. Cost Accounting Allows a Company to Be More Efficient

Typically, an examination of a company’s processes will result in ways to improve them. For
instance, maybe a company will discover it doesn’t need a ten-hour shift on a particular
machine to produce a product, maybe eight hours will do. Or that assigning three people to a
production line has proven too much, as only two are needed.

3. Cost Accounting Can Mean More Profit

If a company makes its production processes more efficient, meaning it is producing the same
output for less, than it will make more money.

RECOMMENDATIONS

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 1. Companies should use the techniques that are most suitable for their environment.
For instance, the level of technological advancement, size of the company, stage of
the product and culture.
2. There should be naturalistic research for the development of cost and management
techniques
3. Companies should only adopt those techniques that have practical basis and those
techniques that their competitors have successfully adopted.

CONCLUSION

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Of late, the boundaries of cost accounting have increased tremendously. It now refers to the
gathering and providing of information for decision needs of all sorts. The term cost
management is widely used now-a-days. This concept has come from the cost accounting.
The cost management concept recognizes shift in cost structure when providing
product cost information. Cost management refers to the activities of managers in
short-run and long-run planning and control of costs. Therefore, beside the traditional
techniques new methods appear. Global market, international business processes, customers’
growing needs for high quality with low price focus manager s’ attention to cost
management. The accounting profession, analyzing the costs behavior, attempts to
improve the traditional costing systems, that is, to answer the new challenges. Activity-
based costing, differential costing, kaizen costing, throughput costing are just a few
examples of new expressions that occur in nowadays cost accounting. Now, competition
and complexity of the structure of production process of goods have become
increased. So, manufacturing organizations have to think about production at lowest
possible cost. On these circumstances, traditional cost accounting techniques are not
giving the fruitful result to response to the keen competition. At present, manufacturing
organizations have to adopt advanced cost accounting techniques. Unfortunately some
companies have an aversion to new concept’s implementation, not recognizing their
positive effect on organization’s performance improvement. The reasons vary from
cultural, through institutional ,political, and behavioral to educational reasons

BIBLIOGRAPHY

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www.freshbooks.com
www.tutorialspoint.com
www.investopedia.com
https://nairaproject.com
https://brainly.in
https://cleartax.in

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