Cost Accounting – Meaning, Types, Techniques & Objective

Cost Accounting:

The process of recording, classifing, summerising and interpreting costing information is called cost accounting.

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Objective Of Cost Accounting:

For the sake of clarification some of the most important objectives of cost accounting are discussed below.

i.Ascertainment of Cost:

It is the primary objective of the cost accounting the cost of each job process and operation.

ii.Fixation of Selling Price:

It provide sufficient cost information to the management body. It enables them to determining selling price, adding a suitable rate of profit.

iii.Findout profit of each activity:

It is another objective of cost accounting is to determine the profit of each companies activity by the cost with its revenue.

iv.Increase Goodwill:

It enables an organisation to produce quality good at reasonable and suitable price. It indirect help to increase reputation and goodwill of organisation.

v.Improve efficiency:

It’s comparative study among standard and actual cost help to local areas of wastage and inefficiency. So, it helps to take corrective action to increase efficiency.

vi.Helpful for Government:

The information provided by cost accounting is very much helpful to government for making policies of import and export of goods and services.

vii.Findout expect/actual cause:

Cost accounting also helps to findout expect or actual cause of profit or loss. Which enables to take necessary steps for smooth running of the organisation.


Types or Techniques of Costing:

For the sake of clarification some of the most important types or techniques of costing which are used by management for controlling cost and making some important managerial decissions are discussed below.


1.Historical Costing:

It refers to the technique of costing under which cost are determined after they have been incurred. It has a limited utility, though comparision of costs over different periods of time may yield goog results.

Ex:- If the cost of production ‘A’ is to be determined on this basis, then one must wait till the materials are purchased and used, labour actually paid and overhead expenses actually incurred. This system of costing is useful only for determining cost but not to control cost.

2.Standard Costing:

It is a system under which (a) cost are scientifically predetermined (b) actual cost are found and ( c ) causes of variances are found out, (d) remedial measures are taken for adverse variation.

The system of standard costing is very much useful to control cost. So, now a days it has become more popular.

3. Absorption Costing:

The process of charging both fixed and variable cost to products/process is known as Absorption Costing. This differs from marginal costing because marginal costing excludes fixed cost.

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Any of the methods of costing like unit or output costing, service costing, process costing etc. can be used under any techniques of cost accounting.

4.Marginal Costing:

It is a technique of costing in which only variable cost are taken into account. The variable cost includes direct material cost, direct Labour cost, direct expenses (variable) and variable overheads. Fixed cost are not taken into account on the ground that it will be incurred irrespective of production occurs or not.

5.Uniform Costing:

It is a system of costing under which the same costing principles or practices are followed by several companies or firms. The system facilitates intefirm comparision.

6.Direct Costing:

The practice of Charging all direct cost to operations/process/products is known as Direct Costing. The indirect cost are to be taken written off against the profit of the period in which they are incurred.


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