Page 12 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes (ix) Assist management in the valuation of closing stock of raw materials and work-in-progress
so that too much of capital is not locked up in unnecessary inventories.
(x) Help in supervising the working of punched card accounting or data processing through
computers.
(xi) Organise cost reduction programmes with the help of departmental managers.

(xii) Organise the internal audit systems to ensure effective working of different departments.
(xiii) Undertake cost audit programmes as per the directives issued by the central government
and the provisions of Indian Companies Act.

(xiv) Design suitable forms for organising an effective cost system of reporting.

1.4 Limitations of Cost Accounting

Cost accounting like other branches of accountancy is not an exact science but is an art which has
developed through various theories and accounting practices based on reasoning and common
sense. Many theories can be proved or disproved in the light of conventions and basic principles
of cost accounting. The following are the main limitations of cost accounting:
(i) System is more Complex: As the cost accounting system involves number of steps in
ascertaining of cost such as collection and classification of overheads, allocation and
apportionment of overheads, it is considered to be complicated system of accounts.
Moreover the system makes use of several documents and forms in preparing the reports.
This will tend to delay in the preparation of accounts.

(ii) Lack of Accuracy: The accuracy of cost accounting get distorted owing to the use of various
costs such as standard cost, marginal cost, estimated cost, etc.
(iii) It is Expensive: The system of cost accounting involves additional expenditure to incurred
in installing and maintaining it. However, before installing it, care must be taken to ensure
that the benefits derived are more than the investment made on this system of counting.
(iv) It lacks Social Accounting: Cost accounting fails to take into account the social obligation
of the business or organisation. In other words, social accounting is outside the purview of
cost accounting.

(v) Not Suitable for Small Units: A cost accounting system is applicable only to a large
business enterprise but not to a small scale one. Hence, there is limitation to its application
to all types of business enterprises.

(vi) Implementation of Same Costing Method and Technique: All business enterprises cannot
make use of a single method and technique of costing. It all depends upon the nature of
business and type of product manufactured by it. If a wrong method and technique is used,
it misleads the results of business.

Task Discuss the main functions of cost accounting in order to serve the management in
execution of various policies.

1.5 Costing –An Aid to Management

A good costing system serves the needs of large sections of people.

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