Objectives of Cost Accounting

Objectives of cost accounting are ascertainment of cost, fixation of the selling price, proper recording and presentation of cost data to management for measuring efficiency and for cost control and cost reduction, ascertaining the profit of each activity, and assisting management in decision making, and determination of break-even point.

The aim is to know the methods by which expenditure on materials, wages, and overheads is recorded, classified, and allocated so that the cost of products and services may be accurately ascertained; these costs may be related to sales and profitability may be determined. Yet with the development of business and industry, its objectives are changing day by day.

Following are the main objectives of cost accounting:

1. To ascertain the cost per unit of the different products manufactured by a business concern;
2. To provide a correct analysis of cost both by process or operations and by different elements of cost;
3. To disclose sources of wastage whether of material, time or expense or in the use of machinery, equipment and tools and to prepare such reports which may be necessary to control such wastage;
4. To provide requisite data and serve as a guide for fixing prices of products manufactured or services rendered;
5. To ascertain the profitability of each of the products and advise management as to how these profits can be maximized;
6. To exercise effective control if stocks of raw materials, work-in-progress, consumable stores, and finished goods in order to minimize the capital locked up in these stocks;
7. To reveal sources of the economy by installing and implementing a system of cost control for materials, labor, and overheads;
8. To advise management on future expansion policies and proposed capital projects;
9. To present and interpret data for management planning, evaluation of performance, and control;

• To help in the preparation of budgets and implementation of budgetary control;
• To organize an effective information system so that different levels of management may get the required information at the right time in the right form for carrying out their individual responsibilities in an efficient manner;
• To guide management in the formulation and implementation of incentive bonus plans based on productivity and cost savings;
• To supply useful data to management for taking various financial decisions such as the introduction of new products, replacement of labor by machine, etc.;
• To help in supervising the working of punched card accounting or data processing through computers;
• To organize the internal audit system to ensure effective working of different departments;
• .To organize cost reduction programs with the help of different departmental managers;
• To provide specialized services of cost audit in order to prevent errors and frauds and to facilitate prompt and reliable information to management; and
• To find out costing profit or loss by identifying with revenues the costs of those products or services by selling which the revenues have resulted.