Cost Accounting

Cost accounting is a accounting process that aims to determine the exact costs involved in a producing a particular product for a company. Cost accountants  evaluate  the costs  incurred at each step of production and take the fixed costs such as depreciation of capital equipment into consideration while doing the calculations. Cost accountants will first measure and record these costs individually and then compare the inputs the expected outputs and the actual outputs and aids the company’s management to measure the financial performance of the company.Cost accounting is widely known as managerial accounting as well as a company’s management spend a lot to ascertain the actual cost involved in monetary terms.

The management uses Cost accounting  a tool for estimating,budgeting and in setting up cost control programs which helps the company to improve it’s net margins for the company in the future.Cost accounting is required usually for fulfilling the internal functions of the company but many of it’s components can be found under various headings in the balance sheet and the Income statement.It is required to ascertain the costs under the headings such as ‘cost of goods sold’ and ‘work in progress’.Many companies determine their selling price by adding required profit using cost sheet.It also helps to ascertain the cost per unit of the goods manufactures.The management also can find out which among all the operations they are running which ones are  giving profitable results and the ones that are not.

Investors stand to benefit from the cost accounting.Even before anyone invests they would like to know the future and the financial condition of the company along with the  capacity of the business to generate money it cant solely be done by just looking at the Income statement and Balance sheet they should also  looking at a detailed cost sheet.Investors will be able to gather information and hence make the investment decisions.Cost accounting helps to fix the wages for  the workers and hence workers who are hardworking and efficient get rewarded for their efficiency and dedication towards work.Cost accounting is one of the many e prime sources of data which can  provide reliable data to internal as well as external parties. It helps governmental agencies to determine excise duty and income tax. Government can use these data as a reference while formulating the tax , industrial,import and export policy.

Cost accounting can be expensive and a very complex system.Cost accounting means that their will be more analysis and allocation of overheads and it will require a considerable amount of additional work. Their is no guarantee that the expenses incurred in ascertaining the cost is more than what is derived from it if so then the process of cost accounting is meaningless and counterproductive. The techniques and methods of cost accounting differ with respect to the industry,requirement and hence from one organization to another organization. Their is just no single standard method is not capable to fulfill all the requirements of every sector and hence cost accounting varies a lot between companies of different sectors. Cost accounting will not be suitable for small scaled units as the returns will be lesser than the expenses of the unit.Cost accounting can only determine the cost of production but the cost of finance is totally overlooked in this system and while using cost accounting a lot of data has to be borrowed from the past and it can be quite full of errors and the cost found out might be the approximate value and not the actual value of the costs.

At present the Indian government doesn’t require companies to have cost sheet.It is optional but more and more companies are uisng cost accounting to reap the many benefits of it. The cost sheets can be very useful for a company if the process is implemented very carefully and in a manner that can be economically beneficial for the company.

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