Department of Management
Program-BBA-II Semester
Course- Cost Accounting
Unit-01
Meaning of Cost Accounting
Cost: The term 'cost' has to be studied in relation to its purpose and conditions. As per the definition by the
Chartered Institute of Management Accountants
(C.I.M.A.), London 'cost' is the amount of actual expenditure incurred on a given thing.
Costing: The C.I.M.A., London has definedcosting as the ascertainment of costs. "It refers to the techniques
and processes of ascertaining costs and studies the principles and rules concerning the determination of cost of
products and services".
Cost Accounting: It is the method of accounting for cost. The process of recording and accounting for all the
elements of cost is called cost accounting.
I.C.M.A. has defined cost accounting as follows:"The process of accounting for cost from the point at which
expenditure is incurred or committed to the establishment of its ultimate relationship with cost centers and cost
units. In its widest usage it embraces the preparation of statistical data, the application of cost control methods
and the ascertainment of the profitability of activities carried out or planned".
Cost Accountancy: The term 'CostAccountancy' includes Costing and Cost accounting. Its purposes are Cost-
control and Profitability - ascertainment. It serves as an essential tool of the management for decision-making.
I.C.M.A., has defined cost accountancy asfollows: "The application of costing and cost accounting principles,
methods and techniques to the science, art and practice of cost control and the ascertainment of profitability. It
includes the presentation of information derived there from for the purpose of managerial decision making"
Definition of Cost Accounting
"Cost Accounting is the techniques and process of ascertainment of cost." -Acc. to LC.M.A London
"Cost accounting is the provision of such analysis and classification of expenditure-
.as will enable the total cost of any particular unit of production
.to be ascertained with reasonable degree of accuracy and
. the same time to disclose exactly how such cost is constituted." - According to Walter W. Bigg
Nature/Features of Cost Accounting
• It involves systematic recording and analysingassociated with a company's operation, product and services.
• It is specialized branch of accounting. Cost accounting is both an art and a science because it adheres to
methodical guidelines and standards while also requiring use of skill and aptitude in its application.
, • It involves identifying the different types of cost that becomes the component of total cost.
• It provides the costing information to assist in setting the prices of goods and services.
•It is a fantastic tool for unit's or process's efficiency.
• It reveals the wastage of time and resources.
•it is helpful to management by providing various information and measures for control & guidance.
SCOPE OF COST ACCOUNTING
Scope of cost accounting consists of the following functions:
A. Costing: Costing is the technique and process of ascertaining costs of products orservices. The cost
ascertainment procedure is governed by some cost accountingprinciples and rules.
B. Cost Accounting: This is a process of accounting for cost which begins with therecording of expenditure
and ends with the preparation of periodical statementand reports for ascertaining and controlling cost.
C. Cost Analysis: It involves the process of finding out the factors responsible forvariance in actual costs from
the budgeted costs and accordingly fixation ofresponsibility for cost differences. This also helps in taking better
cost management and strategic decisions.
D. Cost Comparisons: Cost accounting also includes comparisons of cost involved in
alternative courses of action such as use of different technology for production,
cost of making different products and activities, and cost of same product/service
over a period of time.
E. Cost Control: It involves a detailed examination of each cost in the light of advantage received from the
incurrence of the cost. Thus, we can state that cost isanalyzed to know whether cost is not exceeding its
budgeted cost and whetherfurther cost reduction is possible or not.
F. Cost Reports: This is the ultimate function of cost accounting. These reports areprimarily prepared for use
by the management at different levels. Cost Reportshelps in planning and control, performance appraisal and
managerial decision
making.
G. Statutory Compliances: Maintaining cost accounting records as per the rulesprescribed by the statute to
maintain cost records relating to utilization ofmaterials, labour and other items of cost as applicable to the
production of goodsor provision of services as provided in the Act and these rules.
Program-BBA-II Semester
Course- Cost Accounting
Unit-01
Meaning of Cost Accounting
Cost: The term 'cost' has to be studied in relation to its purpose and conditions. As per the definition by the
Chartered Institute of Management Accountants
(C.I.M.A.), London 'cost' is the amount of actual expenditure incurred on a given thing.
Costing: The C.I.M.A., London has definedcosting as the ascertainment of costs. "It refers to the techniques
and processes of ascertaining costs and studies the principles and rules concerning the determination of cost of
products and services".
Cost Accounting: It is the method of accounting for cost. The process of recording and accounting for all the
elements of cost is called cost accounting.
I.C.M.A. has defined cost accounting as follows:"The process of accounting for cost from the point at which
expenditure is incurred or committed to the establishment of its ultimate relationship with cost centers and cost
units. In its widest usage it embraces the preparation of statistical data, the application of cost control methods
and the ascertainment of the profitability of activities carried out or planned".
Cost Accountancy: The term 'CostAccountancy' includes Costing and Cost accounting. Its purposes are Cost-
control and Profitability - ascertainment. It serves as an essential tool of the management for decision-making.
I.C.M.A., has defined cost accountancy asfollows: "The application of costing and cost accounting principles,
methods and techniques to the science, art and practice of cost control and the ascertainment of profitability. It
includes the presentation of information derived there from for the purpose of managerial decision making"
Definition of Cost Accounting
"Cost Accounting is the techniques and process of ascertainment of cost." -Acc. to LC.M.A London
"Cost accounting is the provision of such analysis and classification of expenditure-
.as will enable the total cost of any particular unit of production
.to be ascertained with reasonable degree of accuracy and
. the same time to disclose exactly how such cost is constituted." - According to Walter W. Bigg
Nature/Features of Cost Accounting
• It involves systematic recording and analysingassociated with a company's operation, product and services.
• It is specialized branch of accounting. Cost accounting is both an art and a science because it adheres to
methodical guidelines and standards while also requiring use of skill and aptitude in its application.
, • It involves identifying the different types of cost that becomes the component of total cost.
• It provides the costing information to assist in setting the prices of goods and services.
•It is a fantastic tool for unit's or process's efficiency.
• It reveals the wastage of time and resources.
•it is helpful to management by providing various information and measures for control & guidance.
SCOPE OF COST ACCOUNTING
Scope of cost accounting consists of the following functions:
A. Costing: Costing is the technique and process of ascertaining costs of products orservices. The cost
ascertainment procedure is governed by some cost accountingprinciples and rules.
B. Cost Accounting: This is a process of accounting for cost which begins with therecording of expenditure
and ends with the preparation of periodical statementand reports for ascertaining and controlling cost.
C. Cost Analysis: It involves the process of finding out the factors responsible forvariance in actual costs from
the budgeted costs and accordingly fixation ofresponsibility for cost differences. This also helps in taking better
cost management and strategic decisions.
D. Cost Comparisons: Cost accounting also includes comparisons of cost involved in
alternative courses of action such as use of different technology for production,
cost of making different products and activities, and cost of same product/service
over a period of time.
E. Cost Control: It involves a detailed examination of each cost in the light of advantage received from the
incurrence of the cost. Thus, we can state that cost isanalyzed to know whether cost is not exceeding its
budgeted cost and whetherfurther cost reduction is possible or not.
F. Cost Reports: This is the ultimate function of cost accounting. These reports areprimarily prepared for use
by the management at different levels. Cost Reportshelps in planning and control, performance appraisal and
managerial decision
making.
G. Statutory Compliances: Maintaining cost accounting records as per the rulesprescribed by the statute to
maintain cost records relating to utilization ofmaterials, labour and other items of cost as applicable to the
production of goodsor provision of services as provided in the Act and these rules.
