What is Cost Accounting? Definition and Objectives

Cost Accounting is used to measure, analyse and control the costs of products and services a business provides.

Cost accounting is the discipline of preparing and maintaining books of accounts to produce financial statements that present information about a firm’s costs, revenues, profits, and expenses. It is the most common method by which profits are calculated.

Definition of Cost Accounting

Cost Accounting may be defined as “Accounting for costs classification and analysis of expenditure as will enable the total cost of any particular unit of production to be ascertained with reasonable degree of accuracy and at the same time to disclose exactly how such total cost is constituted”.

Thus Cost Accounting is classifying and recording an appropriate allocation of expenditure for the determination of the costs of products or services and for the presentation of suitably arranged data for the purpose of control and guidance of management.

Objectives of Cost Accounting

The primary objectives of cost accounting are as follows: –
(a) To determine the costs under various circumstances by employing various costing techniques and methods

(b) To determine the selling prices under various conditions

(c) To determine and control efficiency by establishing standards for Materials, Labor, and Overheads.

(e) To provide a basis for operating policies, such as the determination of Cost Volume relationship, whether to close or operate at a loss, whether to manufacture or buy from the market, whether to continue the existing method of production or to replace it with a more improved method….etc.

f) Achieve a real and lasting reduction in the unit cost of manufactured goods or rendered services.