Objectives and Features of Cost Accounting

Cost Accounting is not maintained for its own sake — it exists to serve a set of clear managerial purposes, and it has a distinct character that separates it from Financial Accounting.

Objectives of Cost Accounting

• Ascertainment of cost — to find out, as accurately as possible, the cost of each product, job, process, or service.
• Cost control — to keep actual costs within a planned/budgeted or standard limit by highlighting variances as they arise.
• Cost reduction — to find genuine, permanent ways of lowering cost per unit without impairing the product's suitability for its intended use.
• Determination of selling price — cost data provides the base on which a reasonable selling price and profit margin can be fixed.
• Guiding managerial decisions — questions such as make-or-buy, whether to accept a special order at a lower price, or whether to close down a loss-making product line all need reliable cost figures.
• Measuring profitability — to work out the profit or loss earned by each product, department, or process separately, rather than only for the business as a whole.
• Furnishing a basis for budgeting and standard costing — historical cost data becomes the foundation for setting realistic future budgets and standards.
• Disclosing wastage and idle capacity — a good costing system brings abnormal losses, idle time, and unused capacity to light, which would otherwise stay hidden inside financial accounts.

Features of Cost Accounting

• It is both a science and an art — a defined, systematic body of principles and classification rules (the science) applied with judgement and skill to a specific organisation's own circumstances (the art).
• It is essentially an internal, management-oriented branch of accounting — unlike Financial Accounting, it is not governed by a statutory format and is not primarily meant for outside parties such as shareholders or tax authorities.
• It deals with both historical and predetermined costs — actual costs already incurred (historical/post-costing) as well as costs planned or estimated in advance (budgeted or standard costing). …