Everything you need to know about cost accounting. Cost Accounting is the process of accounting for costs. It begins with the recording of income and expenditure and ends with the preparation of periodical statements.
The terms ‘Costing’ and ‘Cost Accounting’ are often used interchangeably. But there is a little difference between the two. Costing simply means cost finding by any process or technique.
The Chartered Institute of Management Accountant (CIMA) has defined costing as – “The techniques and processes of ascertaining cost.” Cost Accounting is a formal system of accounting for costs in the books of accounts by means of which cost of products and services are ascertained and controlled.
According to definition given by CIMA, London “Cost Accounting is the process of accounting for cost from the point at which expenditure is incurred to the establishment of its ultimate relationship with cost centres and cost units”.
1. Introduction to Cost Accounting 2. Meaning and Definitions of Cost Accounting 3. Evolution 4. Origin 5. Nature 6. Objectives 7. Need 8. Functions
9. Applications 10. Importance 11. Requisites 12. Installation of Cost Accounting System 13. Cost Accounting Procedure and Techniques 14. Advantages 15. Disadvantages.
What is Cost Accounting: Meaning, Nature, Function, Importance, Features, Functions, Advantages, Disadvantages and Other Details
- Introduction to Cost Accounting
- Meaning and Definitions of Cost Accounting
- Evolution of Cost Accounting
- Origin of Cost Accounting
- Nature of Cost Accounting
- Objectives of Cost Accounting
- Need of Cost Accounting
- Functions of Cost Accounting
- Applications of Cost Accounting
- Importance of Cost Accounting
- Requisites of Cost Accounting
- Installation of Cost Accounting System
- Procedure and Techniques of Cost Accounting
- Advantages of Cost Accounting
- Disadvantages of Cost Accounting
What is Cost Accounting – Introduction
The terms ‘Costing’ and ‘Cost Accounting’ are often used interchangeably. But there is a little difference between the two. Costing simply means cost finding by any process or technique. The Chartered Institute of Management Accountant (CIMA) has defined costing as – “The techniques and processes of ascertaining cost.”
Cost Accounting is a formal system of accounting for costs in the books of accounts by means of which cost of products and services are ascertained and controlled.
According to definition given by CIMA, London “Cost Accounting is the process of accounting for cost from the point at which expenditure is incurred to the establishment of its ultimate relationship with cost centres and cost units”.
This definition is authoritative. In simple words we can say cost accounting is the classifying, recording and appropriate allocation of expenditure for the determination of the costs of products or services and the presentation of arranged data for the purpose of control and guidance of management.
In practice, the terms ‘costing’ and ‘cost accounting’ are used interchangeably. However, costing should not be confused with cost accounting. Costing refers to the technique and process of ascertaining costs. The technique consists of the principles and rules for determining the cost of products and services.
The technique is, however, dynamic and changes with the change of time. The process of costing is the day-to-day routine of ascertaining costs. Cost accounting, on the other hand, is defined as the process of accounting for cost from the point at which expenditure is incurred or committed.
The process continues till the establishment of its ultimate relationship with cost centre or cost unit. It is that specialised branch, of accounting which involves classification, accumulation, allocation, absorption and control of costs. Costing can be carried out by the process of arithmetic, by means of memorandum statements or by the methods of integral accounts.
But cost accounting denotes the formal mechanism by means of which costs are ascertained and data are provided for various purposes of management. Cost accountancy is a wide term which includes several subjects such as costing, cost accounting, cost control, budgetary control and cost audit.
The Chartered Institute of Management Accountants, London, defines cost accountancy as “the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control. It includes the presentation of information derived therefrom for the purposes of managerial decision-making.”
Here, science includes the body of systematic knowledge a cost accountant should possess for proper discharge of his responsibilities. Art includes the ability and skill with which a cost accountant applies his cost accountancy background and knowledge to the problems of cost ascertainment, cost control and ascertainment of profitability.
Practice includes the continuous efforts of a cost accountant in the field of cost accountancy. Such efforts also include the presentation of information for the purpose of managerial decision-making and keeping statistical records.
Financial accounting is largely concerned with financial statements for external use by investors, creditors, labour unions, financial analysts, government agencies, and other interest groups.
It involves recording, classification, and analysis of business transactions in a subjective manner according to nature of expenditure so as to facilitate preparation of profit and loss account and balance sheet for showing the results of the business operations as a whole. It is these published financial statements which are generally the basis for investment decisions by the shareholders, lending decisions by banks and financial institutions and credit decisions by vendors.
What is Cost Accounting – Meaning and Definitions: Suggested by Kohler, Wheldon, Van Sickle and Shilling
Cost Accounting is the process of accounting for costs. It begins with the recording of income and expenditure and ends with the preparation of periodical statements.
The term ‘Cost Accounting’ is defined in different ways by various authorities as follows:
Kohler – “It is that branch of accounting dealing with the classification, recording, allocation, summarisation and reporting of current and prospective costs”.
Wheldon – “It is the classifying, recording and appropriate allocation of expenditure for the determination of the costs of products or services, the relation of these costs to sales values and the ascertainment of profitability”.
Van Sickle – “Cost Accounting is the science of recording and presenting business transactions pertaining to the production of goods and services, whereby these records become a method of measurement and means of control”.
Shilling – “Cost Accounting as a body of concepts, methods and procedures used to measure, analyse or estimate the costs, profitability and performance of individual products, departments and other sequences of a company’s operations, for either internal or external use or both and to report on these questions to the interested parties”.
I.C.MA., London – “It is the process of accounting for cost from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centres and cost units”. In its widest, usage, it embraces the preparation of statistical data; the application of cost control methods and the ascertainment of the profitability of activities carried out or planned.
An analysis of the above comprehensive definitions reveals some of the important functions of Cost Accounting. Cost Accounting refers to the formal mechanism or a systematic procedure by means of which costs of products and services are computed. This is one of the important aspects which distinguish Cost Accounting from Costing.
What is Cost Accounting – Evolution
Cost accounting has come into being because of industrial development and due to the following reasons:
(i) No classified cost figures – Financial Accounting does not provide classified cost figures for products, process and departments, etc. to ascertain cost.
(ii) No fixation of selling price – Financial Accounting does not fix the selling price.
(iii) No identification of reasons for variation in cost – It is not possible from Financial Accounts to ascertain the reasons for the variation in cost of any two or more periods.
(iv) No classification of expenses – Financial accounting does not classify expenses into direct and indirect, controllable and uncontrollable expenses.
(v) No analysis of causes of losses – Financial accounting does not analyse losses- owing to wastage of materials, ideal time etc. to control cost of material labour and overheads.
(vi) No standards for evaluation – Standards are needed for the measurement of operational efficiency and performance evaluation. Financial accounting does not provide such standards.
(vii) No cost data for managerial decisions – Financial accounting does not provide cost data for taking various managerial decisions.
All the above limitations of financial accounting have been overcome by cost accounting.
What is Cost Accounting – Origin: Measurement of Performance and Efficiency, Pricing, Control, Forecasting and Day-to-Day Decisions
The requirements of management may be summarised as follows:
1. Measurement of Performance and Efficiency:
To face severe competition in the business world, a management always needs to maintain their customers. Therefore, to evaluate the present product and market it, it is necessary to measure the performance and business efficiency. Financial accounts cannot serve this purpose at all. In normal times, we can say that profit or loss shown by Profit and Loss account is an indicator of overall efficiency or inefficiency.
But in the periods of inflation or depression this may not be true. So the management would be well advised to ascertain the profit or loss of each product separately. Besides this, management must also try to see that in producing each unit of product there is no unnecessary wastage or loss as regards materials, labour and other expenses.
This information is available to the management only under Cost Accounting System. Again a management can know the exact reason of profit or loss by making proper cost analysis which is possible only in cost accounts.
For fixing prices of products or services, it is necessary to have information regarding each product or unit of service rather than total expenditure. Only, Cost Accounting system can provide this information to the management.
To maximise profit by minimising costs, it is necessary to set up standards and then compare actual costs with these standards. The reason for the discrepancy may be ascertained and then only possible action can be taken to rectify the situation. Such action is possible only in Cost Accounting.
For planning in future, preparations of budgets are necessary. Budgets are prepared on the basis of forecasts of future costs and revenue. In this field also, Cost Accounting is more capable of helping management than Financial Accounting.
5. Day-to-Day Decisions:
Besides price fixing decisions, various other decisions have to be taken continuously such as make or buy, whether an old machine should be replaced by a new one, when operational activities be stopped or started, whether an order at concessional rate should be accepted or not etc. Cost accounting is able to provide the necessary information for such decisions.
Thus, the need for Cost Accounting arises because of the management’s requirement to know the cost of various activities in various circumstances. Costing has a vital role to play in almost any activity which involves expenditure of money, whether it is a business house or a charitable concern or whether it is a Government Department.
Cost Accounting in Indian Context:
The application of Cost Accounting methods in Indian industries was felt from the beginning of the 20th century.
The following factors have accelerated the system of cost accounting in our country:
i) Increased awareness of cost consciousness by Indian industrialists with a view to ascertain costs more accurately for each product or job.
ii) Growing competition among manufacturers led to fixation of prices at a lower level, so as to attract more customers.
iii) Government economic policy emphasizing on planned economy.
iv) Increased Government control over pricing led the Indian manufacturers to give more importance to the installation of cost accounts.
v) The establishment of National Productivity Council in 1958 and a statutory body viz., Institute of Cost and Works Accountants of India.
By realising importance of Cost Accounting techniques, benefits available to the industries, Government of India has made compulsory the maintenance of cost accounts to most of the industries in the corporate sector. For development of cost accounting profession in India, Government passed an Act viz. “Cost and Works Accountants Act, 1959, and established a statutory institute styled as – “Institute of Cost and Work Accountant of India”.
The Companies Act, 1956 has been amended and provision has been made to make it obligatory to industries to maintain the Cost Accounting records. Besides this, Government made ‘Cost Audit’ compulsory to these industries.
During the last 50 years, Cost Accounting emerged as an important tool to the management for improving efficiency and the profitability of the organisation, with increasing complexities in business for efficient management, costing data became important and hence the importance of Cost Accounting is increasing day-by-day.
What is Cost Accounting – Nature: Cost Accounting is a Branch of Knowledge, Cost Accounting is a Science, Cost Accounting is an Art and Cost Accounting is a Profession
The nature of cost accounting can be discussed under the following headings:
1. Cost Accounting is a Branch of Knowledge:
Though cost accounting is considered as a branch of financial accounting, it is one of the important branch of knowledge. It is an organised body of knowledge consisting of its own principles, concepts and conventions. These principles and rules vary from industry to industry.
2. Cost Accounting is a Science:
Cost accounting is considered as a science because it is a body of systematic knowledge relating to not only cost accounting but relating to a wide variety of subjects such as law, office practice and procedure, data processing, production and material control, etc. It is necessary for a cost accountant to have intimate knowledge of all these field of study in order to carry on day-to-day activities. But it is to be admitted that it is not a perfect science as in the case of natural science.
3. Cost Accounting is an Art:
Cost accounting is an art in the sense it requires the ability and skill on the part of cost accountant in applying the principles methods and techniques of cost accountancy to various management problems. These problems include the ascertainment of cost control of costs, ascertainment of profitability etc.
4. Cost Accounting is a Profession:
In recent years cost accounting has become one of the important professions which have become more challenging. This view is evident from two facts. First, the setting up of various professional bodies such as National Association of Accountants (NAA), the Institute of Cost and Management Accountant U.K., the Institute of Cost and Works Accounts in India and such other professional bodies both in developed and developing countries have increased the growing awareness of costing profession among the people. Secondly, a large number of students have enrolled in these institutes to obtain costing degrees and membership for earning their livelihood.
What is Cost Accounting – 4 Main Objectives
The main objectives of cost accounting are as follows:
1. Ascertainment of cost – This is the primary objective of cost accounting. For cost ascertainment different techniques and systems of costing are used under different circumstances.
2. Control of cost – Cost control aims at improving efficiency by controlling and reducing cost. This objective is becoming increasingly important because of growing competition.
3. Guide to business policy – Cost accounting aims at serving the needs of management in conducting the business with utmost efficiency. Cost data provide guidelines for various managerial decisions like make or buy, selling below cost, utilisation of idle plant capacity, introduction of a new product, etc.
4. Determination of selling price – Cost accounting provides cost information on the basis of which selling prices of products or services may be fixed. In periods of depression, cost accounting guides in deciding the extent to which the selling prices may be reduced to meet the special situation.
What is Cost Accounting – Need
Cost accounting provides valuable help to the management. It is not easy to quantify the need and importance since it cannot be concluded about where the work of a cost accountant comes to an end. The following points can be taken under the concept of “need”. The same points are also the main advantages of cost accounting.
1. Helps to ascertain cost
2. Helps in price fixation
3. Helps to eliminate wastages
4. Helps to identify and eliminate unprofitable activities
5. Helps to check statement accuracy
6. Helps in inventory control
7. Helps for cost and revenue estimation
8. Helps to increase productivity and earning capacity
9. Helps investor’s, moneylenders and other financial institutions to know about the business
10. Helps in formulating efficient policy for day-to-day business activities
11. Helps cost control.
What is Cost Accounting – 11 Major Functions
In the words of John Gary Blocker, ‘Cost Accounting is to serve management in the execution of policies and in the comparison of actual and estimated results in order that the value of each policy may be appraised and changed to meet the future conditions.’
To elaborate the statement, the functions of cost accounting can be enumerated as follows:
1. To calculate the cost per unit of the various products manufactured by the firm.
2. To prepare a correct cost analysis of both by process or operations, and by the different elements of cost.
3. To ascertain the wastage in each process of manufacture and to prepare reports which can assist wastage control.
4. To provide the necessary information for the determination of selling prices.
5. To compute product-wise profit, and advise the management for the enhancement of profit.
6. To serve the management in the valuation of goods-in-process and finished goods, so that the minimum capital is blocked up in the stocks.
7. To install and implement cost control systems (budgetary control or standard cost system) for the control of material, labour, and overhead expenses.
8. To advise the management for the formulation of future expansion policies and proposed capital outlays.
9. To establish an effective reporting system. This will help the different levels of management to receive the necessary cost data in time in order to enable them to fulfil their individual responsibilities in an efficient manner.
10. To guide the management in the preparation and implementation of incentive schemes based on productivity and cost savings.
11. To advise the management on the profitability of present or new lines of products, the comparative advantages and disadvantages of different types of production methods, the replacement of manual operations by automation, and other such policy matters which have a direct impact on the development of the company.
The additional functions can be briefly listed as under:
1. To supervise punched card accounting or data processing division operations.
2. To organize internal audit system so that the effective working of the accounting control and production control methods can be introduced from time to time and be well ensured.
3. To coordinate with the industrial engineers for the introduction and implementation of methods suggested for improvement and or redundancy of programmes and data.
4. To provide the Government or other public bodies with the specialized service of cost audit.
What is Cost Accounting – 4 Importance: Cost Accounting and Management, Cost Accounting and Employees, Cost Accounting and Creditors and a Few Others
The limitations of financial accounting have made the management to realise the importance of cost accounting. Whatever may be the type of business, it involves expenditure on labour, materials, and other items required for manufacturing and disposing of the product. Moreover, big business requires delegation of responsibility, division of labour and specialisation.
Management has to avoid the possibility of waste at each stage. It has to see that no machine remains idle, efficient labour gets due initiative, proper utilisation of byproducts is made and costs are properly ascertained. Besides management, creditors and employees are also benefited in numerous ways by installation of a good costing system in an industrial organisation. Cost accounting increases the overall productivity of an industrial establishment and, therefore, serves as an important tool in bringing prosperity to the nation.
Thus, the importance of cost accounting in various spheres can be summarised under the following headings:
Cost accounting provides invaluable aid to management. It is so closely allied to management that it is difficult to indicate where the work of the cost accountant ends and managerial control begins. Adequate costing data help management in reaching certain important decisions such as, whether hand labour should be replaced by the machinery or not; whether a particular product line should be discontinued or not etc.
Costing checks recklessness and avoids occurrence of mistakes. Cost can be reduced by proper organisation of the plant and executive personnel. As an aid to management it also provides invaluable information to enable management to maintain effective control over stores and inventory, to increase efficiency of the business and to check wastage and losses. It facilitates delegation of responsibility for important tasks and rating of employees. However, for all this, it is necessary for the management to be capable of using in a proper way the information provided by the cost accounts.
The various advantages derived by management on account of a good costing system can be put as follows:
i. Costing helps in periods of trade depression and trade competition – In periods of trade depression the business cannot afford to have leakages which pass unchecked. The management should know where economies may be sought, waste eliminated and efficiency increased. The business has to wage a war for its survival. The management should know the actual cost of their products before embarking on any scheme of reducing the prices or giving tenders. Adequate costing facilitates this.
ii. Aids in price fixation – Though economic law of supply and demand and activities of the competitors, to a great extent, determine the price of the article, cost to the producer does play an important part. The producer can take necessary guidance from his costing records.
iii. Helps in estimate – Adequate costing records provide a reliable basis upon which tenders and estimates may be prepared. The chances of losing a contract on account of over-rating or losing in the execution of a contract due to under-rating can be minimised. Thus, “ascertained costs provide a measure for estimates, a guide to policy, and a control over current production.”
iv. Helps in channelising production on right lines – Costing makes possible for the management to distinguish between profitable and non-profitable activities. Profit can be maximised by concentrating on profitable operations and eliminating non-profitable ones.
v. Wastages are eliminated – As it is possible to know the cost of the article at every stage, it becomes possible to check various forms of waste, such as time, expenses etc., or in the use of machine, equipment and tools.
vi. Costing makes comparison possible – If the costing records are regularly kept, comparative cost data for different periods and various volumes of production will be available. It will help the management in forming future lines of action.
vii. Provides data for periodical profit and loss accounts – Adequate costing records supply to the management such data as may be necessary for preparation of profit and loss account and balance sheet, at such intervals as may be desired by the management.
It also explains in detail the sources of profit or loss revealed by the financial accounts; thus helps in presentation of better information before the management.
viii. Aids in determining and enhancing efficiency – Losses due to wastage of material, idle time of workers, poor supervision etc. will be disclosed if the various operations involved in manufacturing a product are studied by a cost accountant. The efficiency can be measured and costs controlled and through it various devices can be framed to increase the efficiency.
ix. Helps in inventory control – Costing furnishes control which management requires in respect of stock of materials, work-in-progress and finished goods.
x. Helps in cost reduction – Costs can be reduced in the long-run when alternatives are tried. This is particularly important in the present-day context of global competition. Cost accounting has assumed special significance beyond cost control this way.
xi. Assists in increasing productivity – Productivity of material and labour is required to be increased to have growth and more profitability in the organisation. Costing renders great assistance in measuring productivity and suggesting ways to improve it.
Workers have a vital interest in their employer’s enterprises and the industry in which they are employed. Workers are benefitted by a number of ways by the installation of an efficient costing system in their enterprise. They are benefitted because of systems of incentives, bonus plans etc. They get benefit indirectly through increase in consumer goods and directly through continuous employment and higher remuneration.
Investors, banks and other moneylenders have a stake in the success of the business concern and, therefore, are benefited immediately by installation of an efficient costing system. They can base their judgement about the profitability and further prospects of the enterprise upon the studies and reports submitted by the cost accountants.
An efficient costing system brings prosperity to the concerned business enterprises resulting into stepping up of the government revenue. The overall economic development of a country takes place due to increase in efficiency of production. Control of costs, elimination of wastages and inefficiencies lead to the progress of the industry and in consequence of the nation as a whole.
What is Cost Accounting – Requisites of a Good Cost Accounting System
To achieve the objectives of a business organization a good Cost Accounting system should be.
1. Simple and Easy to Operate – The system of Cost Accounting should be simple to be understood by an average person. All important informations, facts and figures must be provided with cost records to make it more meaningful and enable the managers to exercise the cost control.
2. Suitable to the Business – A Cost Accounting system should be designed according to the nature, type and size of the business. It should serve the business by providing all necessary informations.
3. Flexible – A Cost Accounting system should be flexible enough to be changed according to the business environment and conditions. For example, if a business expands this system should absorb in it. This feature is necessary because business environment is not stable.
4. Economy – The cost of operating costing system must be minimum. Its benefits should exceed its cost.
5. Comparability – The cost records should be maintained in such a way to facilitate comparison between present and past figures.
What is Cost Accounting – Installation of Cost Accounting System
Cost accounting is a systematic procedure for determining the cost per unit of output produced or services rendered. No business will have a common costing system readily available to meet the cost information. Therefore in order to meet the specific requirements of a business relating to the cost, a business unit with the help of the cost accountants have to device a proper system.
The installation of costing system requires a detailed understanding of all the aspects of cost. Again in order to install a costing system a business has to make a cost benefit analysis i.e., the amount of cost to be incurred and the likely benefits to be derived from it. It should be noted that the system should be adopted provided the benefits from the system exceeds the costs.
The steps required to install a costing system are as follows:
1. The system should be designed after a careful analysis of the nature of the operations and the type of cost data required by the management.
2. The technical aspects of the business should be considered and attempt should be made to get the assistance of the technical and supervisory staff.
3. The organizational structure should be studied to ascertain the scope of authority of each executive.
4. The system should be simple and easy to operate. Unnecessary details should be avoided as for as possible.
5. The system should be able to serve the requirements of management.
6. The information provided should be accurate and there has to be a regularity in supplying the accurate information to the management.
7. The layout of the factory and its details should be properly studied. The system should be capable of cost control and cost reduction effectively
8. The methods of purchase and issue of materials should be properly examined and modified, if necessary.
9. The method of remunerating the labour should also be checked and introduce attractive incentive plans if necessary.
What is Cost Accounting – Procedure and Techniques
Cost Accounting Procedures:
The cost accounting procedure involves the following steps in a sequential order:
1. Cost classification—arrangement of items of cost accumulated, in logical groups having regard to their nature and purpose (subjective as well as objective classification);
2. Cost allocation—assigning a whole item of cost, or of revenue, to a single cost unit, centre, account or time period,
3. Cost apportionment—to spread revenues or costs over two or more cost units, centres, accounts or time periods (also known as ‘indirect allocation’);
4. Overhead absorption—assigning or attaching overhead to products or services by means of absorption rates.
Cost Accounting Techniques:
Cost information is presented to the managerial personnel by the use of the following techniques:
1. Decision Making Techniques:
a. Differential costing—ascertainment of the difference in total cost between alternatives.
b. Variable costing—ascertainment of variable cost.
c. Opportunity costing—ascertainment of revenue foregone from alternative use of the resource.
2. Planning and Control Techniques:
a. Standard costing—setting standards for different elements, comparison of actuals with standards, analysis of variances in parts, investigation into causes and action in the form of rewards and punishment.
b. Budgetary control—preparation of budgets for a future period of time, setting out responsibilities of different functional heads, comparison of actual results with planned results, variances, analysis of variances, investigating causes and action in the form of rewards and punishment.
What is Cost Accounting – 14 Main Advantages
A sound system of costing is to be installed, depending upon the type of product, manufacturing methods, size and type of organisation and the selling and distribution methods.
Then, it provides the following advantages:
1. To indicate to the management any losses or inefficiencies occurring in any form, such as waste—whether of materials, time, expense or in the use of machinery, equipment and tools.
2. To reveal sources of economies in production, having regard to methods, types of equipment, design, cost centres or responsibility centres, output and layout.
3. To provide data for periodical P & L accounts and Balance Sheets.
4. To provide such information upon which estimates and tenders may be based.
5. To provide actual figures of cost for comparison with ‘estimates, standards or budgets and to serve as a guide for future estimates. This helps in cost control.
6. Profitable and unprofitable activities are disclosed.
7. Determination of selling price, i.e., to assist the management in their price-fixing policy.
8. The exact cause of variance in the profit or loss can be located.
9. Costing guides future production policies.
10. To provide a perpetual inventory of stores so that interim P & L A/c and Balance Sheets can be prepared without actual stock-taking and checks on stores and adjustments are made at frequent intervals. Cost of closing stock of raw materials, work-in-progress and finished products can easily be ascertained.
11. To provide an independent and reliable check on the accuracy of financial accounts with the help of reconciliation statement.
12. To help the government, Wage Boards and Trade Unions in wage fixation and price fixation.
13. Cost estimates will serve as a guide for future estimates or quotations.
14. To help the management in taking vital decisions, such as- (a) make or buy decisions or expand or buy decisions; (b) manual or mechanical operations; (c) different types of machines, or methods or manufacture-costs and profits thereof; (d) investment decisions in regard to capital expenditure; (e) whether to accept others below cost; (f) whether to do with existing machines or improved ones; (g) -whether to do with existing processes or improved ones; (h) whether to shut down or operate at a loss; (i) whether to continue or discontinue an unprofitable product line; (j) whether to introduce a new product line or not; (k) finally, determination of cost-volume-profit relationship.
What is Cost Accounting – 8 Major Disadvantages
1. Involves heavy expenditure since the system has to maintain numerous records
2. Not applicable for all types of industry
3. No standard system for all industry
4. It is mechanical in nature
5. It is stereotyped
6. Common notion is that it cannot control costs and can contribute for operating efficiency. But can only give information on the same.
7. “Cost Concept Terminology” interpretation during decision making according to the convenience of cost accountants acts as a hurdle for standards
8. Considered “Empirical Science”