Page 15 - DCOM202_COST_ACCOUNTING_I

Unit 1: Nature and Scope of Cost Accounting

Self Assessment Notes

State whether the following statements are true or false:
7. Financial accounts deal with all the items of expenses, losses, income and gains in total but
the cost accounts deal with items of cost alone.
8. Financial accounts cover a short period usually a week.
9. Cost accounting will generally present a better picture to the public who can not understand
the intricacies of the maintenance of accounting.
Some of the responsibilities that are taken care of by the cost accountant analyst are:
1. Analyze as well as put to rights monthly material, labor and the overhead expenses.
2. Reconcile daily productions with accounting transactions.

3. Coordinate with R&D and production on the commercialization of new items.
4. Assistance with the month end reconciliation as well as analysis.
5. He has to assist the controller as well as the improvement manager in developing cost
improvement opportunities.

6. He might even have to attend the meetings with the marketing department to discuss the
marketing agenda as well as costing.
7. He also has to prepare the new product costing as well as do the gross profit analysis for
the marketing in order to determine the feasibility and profitability before presenting the
samples and pricing to the customers.

1.7 Costing System

An ideal system of costing is that which achieves the objectives of a costing system and brings
all advantages of costing to the business. The following are the main essentials of an ideal cost
accounting system:

(i) Simplicity: The system of costing should be simple and plain so that it may be easily
understood even by a person of average intelligence. Cost accounting system involves
detailed analysis of cost. To avoid complications in the procedure of cost ascertainment an
elaborate system of costing should be avoided and every care must be taken to keep it as
simple as possible.
(ii) Suitability to the Business: The cost accounting system should be capable of adopting
itself to the changing situations of business. It must be capable of expansion or contraction
depending upon the needs of the business.
(iii) Accuracy: The system of cost accounting must provide for accuracy in terms of both
ascertainment of cost and presentation of cost data. Otherwise it will prove to be
misleading.
(iv) Comparability: The records to be maintained must facilitate comparison over a period of
time. The past records must serve as a basis to guide the future.
(v) Economical: The costs of production costing system must be less. It must result in increased
benefit when compared to the expenses incurred in installing it.
(vi) Uniformity: The various forms and documents used under costing system must be uniform
in size and quality of paper. printed forms must be used to avoid delay in the preparation
of various reports. This also reduces the unnecessary burden of clerical staff. Forms of
different colours can be used in different documents or reports.

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