Page 11 - DCOM202_COST_ACCOUNTING_I

Unit 1: Nature and Scope of Cost Accounting

Costing, Standard Costing, Budgetary Control, Total Absorption Costing and Uniform Notes
Costing.
(iv) Cost Audit: The terminology of ICMA, London, defines cost audit, as “the verification of the
correctness of cost accounts and of the adherence to the cost accounting plan”. Cost audit
has a much wider role to play in an industry or organisation than people could imagine. The
aim of cost audit is to highlight the shortcomings inherent in the cost accounting system.
(v) Budgetary Control: According to Heiser, budgetary control can be defined as “an overall
blue print of a comprehensive plan of operations and actions expressed in financial terms”.
According to him, budgeting process involves the preparation of a budget, comparison of
budgeted and actual expenditure and income, planning and coordinating for control, etc.

Self Assessment

State whether the following statements are true or false:
1. Financial accounting is concerned with the classification, accumulation, control and
assignment of costs.
2. The cost accounting system is directly concerned with control of inventories, plant assets
and funds expanded on functional activities.

3. The cost accounting system is independent of the financial accounts.
Fill in the blanks:
4. ………………… is the guidance and regulation by executive action of the costs of operating
and undertaking.

5. The aim of ………………… is to highlight the shortcomings inherent in the cost accounting
system.
6. ………………… process involves the preparation of a budget, comparison of budgeted and
actual expenditure and income, planning and coordinating for control, etc.

1.3 Functions of Cost Accounting

According to Weltemer and Blocker, cost accounting is to serve management in the execution
of various policies and in comparison of actual and estimated results in order that the value of
each policy may be appraised and changed to meet the future conditions. Following are the main
functions of cost accounting to:

(i) Establish various cost centres in the business or industry.
(ii) provide necessary data to the management for fixing the selling price.
(iii) prepare various reports on wastages, loss of labour, idle capacity of machines so as to
improve profitability of business or industry.
(iv) Ascertain the cost of every product, job or process both in terms of total cost and per unit
cost of product.
(v) Implement various cost control techniques such as budgetary control, historical costing
and standard costing.
(vi) Design suitable system for defining responsibilities and controlling cost.
(vii) prepare cost schedules to assist management in decision-making.
(viii) prepare cost statements and profit and loss account for giving advice to management.

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