Everything you need to know about the objectives of cost accounting. Cost accounting is a recent development born in response to the needs of managerial personnel for detailed information about the cost of a product or unit of service.

In the initial stages of its evolution, cost accounting confined itself to accumulation of historical costs and presentation of the same for the sole purpose of cost finding or product costing.

Costing, Cost Accounting and Cost Accountancy differ from one another in terms of theoretical definition. In practice however all the three mean the same.

Similarly, the objectives of Costing are the same as objectives of Cost Accounting and Cost Accountancy.

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Some of the objectives of cost accounting are:-

1. Ascertainment of Cost 2. Control of Cost 3. Determination of Selling Price 4. To Provide a Basis for Operating Policy

5. Frequent Preparation of Accounts and Other Reports 6. To Provide Data for Cost Reduction 7. Preparation of Cost Estimates 8. Standards for Measuring Efficiency.


Objectives of Cost Accounting: Ascertainment of Cost, Control of Cost, Determination of Selling Price and a Few Others

Objectives of Cost Accounting – 6 Important Objectives: Ascertainment of Cost, Fixation of Selling Price, Cost Control, Matching Cost with Revenue and a Few Others

Cost accounting was born to fulfill the needs of management of manufacturing companies for a detailed information about the cost. Cost accounting is a mechanism of accounting by means of which costs of services or products are ascertained and controlled in a manufac­turing firm for different purposes. The managerial skill and abilities can be improved. The object of cost accounting is to ascertain the true cost of every operation, through a close watch—cost analysis and allocation.

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The main objectives or purposes are as follows:

Objective # 1. Ascertainment of Cost:

It enables the management to ascertain the cost of product, job, contract, service or unit of production so as to develop cost standard. Costs may be ascertained, under different circumstances, using one or more types of costing principles— standard costing, marginal costing, uniform costing etc.

Objective # 2. Fixation of Selling Price:

Cost data is useful in the determination of selling price or quotations. Apart from cost ascertainment, the cost accountant analyses the total Cost into fixed and variable costs. This will help the management to fix the selling price; sometimes, below the total cost but above the variable cost. This will increase the volume of sales—more sales than previously, thus leading to maximum profit. The scientific way of reducing the prices is possible in an industry only where a sound costing system exists. In other words, cost reduction, in the absence of a costing system, may cause to shut down the industries.

Objective # 3. Cost Control:

The object is to minimise the cost of manufacturing. Comparison of actual cost with standards reveals the discrepancies—variances. If the variances are adverse, the management enters into investigation so as to adopt corrective action immediately.

Objective # 4. Matching Cost with Revenue:

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The determination of profitability of each product, process, department etc. is the important object of costing.

Objective # 5. Special Cost Studies and Investigations:

It undertakes special cost studies and investigations and these are the basis for the management in decision-making or policies. This will also include pricing of new products, contraction or expansion programmes, closing down or continuing a department, product mix, price reduction in depression etc.

Objective # 6. Preparation of Financial Statements, Profit and Loss Account, Balance Sheet:

To prepare these statements, the value of stock, work-in-progress, finished goods etc., are essential; in the absence of the costing department, when we have to close the accounts it rather takes too much time. But a good system of costing facilitates the preparation of the statements, as the figures are easily available; they can be prepared monthly or even weekly.


Objectives of Cost Accounting – 6 Major Objectives: Ascertainment of Cost, Control of Cost, Reduction in Cost, Determination of Selling Price, Matching Cost with Revenue

The following are the major objectives of cost accounting:

1. Ascertainment of Cost:

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The basic objective of cost accounting is to ascertain the cost of a product, job or service. Expenses relating to a product are collected from diverse sources. In addition to direct expenses relating to a product, joint expenses pertaining to several products are also taken into consideration (apportioned on some equitable basis) while ascertaining the cost of a product.

2. Control of Cost:

The second objective of cost accounting is to control the cost so that the maximum and better production at minimum cost may be made possible. To achieve this objective, the techniques of budgetary control and standard costing are adopted.

3. Reduction in Cost:

Costs are not only to be controlled but constant efforts are to be made for reducing them. Cost reduction implies real and permanent reduction in the unit cost of goods manufactured or service rendered without impairing their (products or goods) suitability for the use intended. Value analysis, time and motion study, standardisation, simplification, etc. are the major techniques of cost reduction.

4. Determination of Selling Price:

Cost accounting provides cost information on the basis of which selling prices of products or services can be determined. In the event of depression or recession, cost accounting guides in deciding the extent to which the selling price may be reduced to meet special situations.

5. Matching Cost with Revenue:

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The profit of any activity can be ascertained by matching cost with the revenue of that activity. The purpose of this step is to determine profit or loss of any activity on an objective basis.

6. Providing Basis for Operating Policy:

Cost accounting is an essential tool for the management to formulate operating policies and to take business decisions like determination of cost-volume-profit relationship; whether to buy or to make an article, etc.


Objectives of Cost Accounting – Top 11 Objectives

The main objectives of cost accounting are:

1. To ascertain cost of production of every unit, job, operation, process, department or service, and to develop cost standards.

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2. To indicate to the management any inefficiencies and the extent of various forms of waste, whether of material, time, expense or in the use of machinery, equipment and tools. Analysis of the causes of unsatisfactory results may indicate remedial action.

3. To reveal sources of economics after taking into account design of products and methods of production, type of equipment, rate of output and layout of activities.

4. To disclose profitable and unprofitable activities so that steps can be taken to eliminate or reduce those from which little or no profit is obtained or to change the method of production or incidence of cost in order to render such activities more profitable.

5. To provide actual figures of cost for comparison with estimates and to assist the management in their price-fixing policy.

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6. To present comparative cost data for different periods and different volumes of production and thereby assist the management in budgetary control.

7. To record and report to the concerned manager how actual costs compare with standard costs and possible causes of differences (variances) between them.

8. To indicate the exact cause of increase or decrease in profit or loss shown by the financial accounts.

9. To provide data for comparison of costs within the firm and also between similar firms.

10. To show the effect on profitability when a factory is not producing to full capacity.

11. To supply suitable cost data for managerial decision-making as regards expansion and contraction of activities, making or buying of components, determining the break-even point, dropping a product line, selecting the optimal sales-mix, shutting down of existing operations, etc.


Objectives of Cost Accounting – Ascertainment of Costs, Determining Selling Price, Determining and Controlling Efficiency, Facilitating Preparation of Financial Statements

The main objectives of cost accounting may be stated thus:

Objective # 1. Ascertainment of Costs:

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It enables management to ascertain the cost of a product, job or operation in a systematic way. Expenses relating to a product are collected from diverse sources. In addition to direct expenses relating to a product, joint expenses pertaining to several products are also taken into account (divided on some equitable basis) while ascertaining the cost of a product.

Objective # 2. Determining Selling Price:

Cost accounting provides useful cost data for fixing the selling price of a product. By dividing the expenses into fixed and variable components, it helps management to fix the price of a product in a scientific manner. For example, in times of falling prices, the manufacturer knows where to put an end to the production and to what extent he can cut down the prices.

The margin at various levels of production can also be found out easily. Of course the impact of factors such as governmental price controls, competitive conditions in the market, plant capacity of the organisation, subsidies and concessions to a particular industry in an area should not be discounted while arriving at the price of a product.

Even when these factors prevail, the manufacturer, armed with prompt cost information will be better equipped to quote a suitable price for his products than others.

Objective # 3. Determining and Controlling Efficiency:

Cost accounting involves the study of various operations in an undertaking. All activities are put to a close examination, with a view to find out the sources of efficiency or inefficiency. Once the weak spots are located through such studies, rectificational steps can be initiated promptly—setting things in order. A number of techniques such as standard costing, budgetary control are employed for this purpose.

Objective # 4. Facilitating Preparation of Financial Statements:

Cost accounting facilitates the preparation of daily, weekly or monthly reports regarding stock of raw materials, work in progress, and finished goods. In the absence of cost accounting, management is forced to rely on year-end financial statements prepared under the financial accounting.

Weekly or monthly reports cannot be prepared (in the absence of cost data on movement of stocks). Cost accounting helps management to take stock of production, sales and operating results from time to time and prepare financial statements as and when required.

Objective # 5. Providing a Basis for Operating Policy:

Cost accounting helps management in the planning and execution of operating policies relating to (i) cost- volume relationship, (ii) shutting down or operating the plant incurring losses, (iii) make or buy decisions, (iv) producing with existing plant and equipment or replacing them with improved facilities.


Objectives of Cost Accounting – Cost Ascertainment, Cost Control, Decision-Making and Fixation of Selling Price

Cost accounting is a recent development born in response to the needs of managerial personnel for detailed information about the cost of a product or unit of service. In the initial stages of its evolution, cost accounting confined itself to accumulation of historical costs and presentation of the same for the sole purpose of cost finding or product costing.

With the passage of time, however, the scope of cost accounting was broadened and provision of information for cost control and cost reduction became more important than product costing.

Cost accounting is necessary for the achievement of the following objectives or purposes:

1. Cost Ascertainment:

Cost finding is, even today, the basic objective of cost accounting For the purpose of ascertaining the cost of a product, process or operation, it is necessary to record the expenses incidental thereto, subjectively as well as objectively. In the process of recording, expenses are reclassified according to the purpose for which they are incurred.

After re-classification, these expenses are allocated and apportioned amongst the respective products, processes or departments for building up total cost for each of these. Cost per unit is arrived at by dividing the total cost by the number of units produced.

2. Cost Control:

This is, in fact, the principal objective of cost accounting. This objective is achieved by setting standards of performance. Actual costs are compared with the pre-determined standards. Deviation, if any, is immediately corrected. The controlling function is performed by managers at different levels to ensure that operations, processes and departments including costs are under control.

Thus, cost accounting facilitates control by directing the attention of management to specific areas where corrective action is needed.

3. Decision-Making:

Choosing amongst alternatives is also one of the objectives of cost accounting. Cost information, presented to management regularly at stated intervals of time, enables management to make short-term and long- term decisions. Thus, cost information is of immense use for formulating operating policies of an enterprise.

4. Fixation of Selling Price:

Cost per unit, ascertained by dividing the total cost by the number of units produced, facilitates fixation of selling price. Unless the cost is known, the required percentage of profit cannot be added to cost, since selling price is equal to cost plus profit. The need for reliable cost data becomes apparent specially during a period of depression when the selling price has to be fixed below total cost.


Objectives of Cost Accounting – Ascertaining Costs, Determining Selling Price, Measuring and Increasing Efficiency, Cost Control, Cost Reduction and a Few Others

The main objectives of cost accounting can be summarized as follows:

Objective # 1. Ascertaining Costs:

The first and foremost objective of cost accounting is to ascertain cost of a product, process or service. The other objectives which have been mention hereafter scan be achieved only when the costs have been ascertained.

Objective # 2. Determining Selling Price:

Business enterprises are run on a profit – making basis. It is thus necessary that the revenue should be greater than the costs incurred in producing goods and services from which the revenue is to be derived. Cost accounting provides information regarding the cost to make and sell such products or services.

Objective # 3. Measuring and Increasing Efficiency:

Cost accounting involvers a study of the various operations used in manufacturing a product or providing a services. The study facilitates measuring of the efficiency of the organisation as a whole as well as of the departments besides devising means of increasing the efficiency.

Objective # 4. Cost Control and Cost Reduction:

Cost accounting assists in cost control it used techniques such as budgetary control, standard costing etc., for controlling costs. Budgets are prepared will in advance. The standards for each item of cost are determined, the actual costs are compared with the standard costs and variances are found out as to their causes.

This greatly increases the operating efficiency of the enterprise. Besides it, cost is required to be reduced also constant research and development activities help in reduction of costs without compromising with the quality of goods or services.

Objective # 5. Cost Management:

The term ‘cost management’ includes the activities of managers in short-run and long-run planning and control of costs. Cost management has a broad focus. It includes both cost control and cost reduction. As a matter of fact cost management is often invariably linked with revenue and profit planning. For instance, to enhance revenue and profits, the management often deliberately incurs additional costs for advertising and product modifications.

Objective # 6. Ascertaining Profits:

Cost accounting also aims at ascertaining the profits of each and every activity. It produces statements at such intervals as the management may require. The financial statements prepared under financial accounting, generally once a year or half-year, are spaced too far apart in time to meet the needs of the management. In order to operate the business at a high level of efficiency, it is essential for the management to have a frequent review of production, sales and operating results.

Cost accounting provides daily, weekly or monthly volumes of units produced, accumulated costs together with appropriate analysis so that quantum of profit and profitability is known.

Objective # 7. Providing Basis for Managerial Decision-Making:

Costs accounting helps the management in formulation operative policies.

These policies may relate to any of the following matters:

(i) Determination of cost-volume profit relationship.

(ii) Shutting down or operating at a loss.

(iii) Making or buying from outside supplies.

(iv) Continuing with the existing plant and machinery or replacing them by improved and s economical means.


Objectives of Cost Accounting – Top 3 Objectives: Ascertainment of Costs, Cost Control and Cost Analysis for Managerial Decisions

The important objectives of Cost Accounting are three in number.

They are:

1. Ascertainment of Costs

2. Cost control, and

3. Cost analysis for managerial decisions.

1. Ascertainment of Costs:

This is one of the important objectives of Cost Accounting. Ascertainment of cost is also a pre-requisite for cost control and for furnishing cost information to the management for taking decisions. Depending upon the managerial requirements, it ascertains costs of process, function, division, etc. Further, it ensures that all the items of costs which are incurred and/or attributable to a particular activity or product are absorbed in the cost of the activity or product.

With the help of its Standard Costing, it also fixes the standards for each element of cost facilitating the comparison of actuals with the standards to find out variances, if any and reasons for such variances and drawing the attention of the management to take necessary action. Shilling law has, therefore, said, cost accounting was born in response to the needs of the managers of manufacturing companies for a detailed information about the cost of manufacturing individual products.

For the purpose of accomplishing this objective, it makes elaborate arrangements for collection, analysis and classification of cost data, and for their proper accounting using the most reliable methods.

2. Control of Costs:

The success of a company depends, greatly, on the economies it achieved in the costs of production and sales. It is, therefore, necessary for the company to exercise utmost control over the costs. Cost Accounting plays a stupendous role in this area with the help of budgets and standards.

Because, by setting standards and establishing budgets, it collects the information about both the actuals and standards, compares them to find the variations, analyses them to find out the reasons, and submits the reports to the management for its action. It is because of this reason that CIMA, London has defined cost control as the regulation by executive action of the costs of operating an undertaking particularly where such action is guided by Cost Accounting.

Further, the Cost Accountant identifies the areas wherein the company has to improve its efficiency, reduce losses, wastages, etc. These aspects are brought to the attention of the management for taking remedial measures. This way, Cost Accounting, with the help of its various tools and techniques, plays a very effective role in the control of costs.

3. Assists Managerial Personnel:

Cost Accounting is designed primarily to serve the needs of the management. Managerial personnel have to take a number of decisions and to take decisions, they need relevant information.

Cost Accounting with the help of its Marginal Costing, and other tools and techniques, provides a very useful, timely and relevant information to the management to take various decisions such as – product diversification, pricing decision, make or buy decision, sell or further process, dropping a product line, suspending the activities of a sales territory, plant shut-down, plant location, optimal level of activity, profitable mix, scarce resource allocation, etc.


Objectives of Cost Accounting – Ascertaining Costs, Determining Selling Price, Measuring and Increasing Efficiency, Cost Control, Ascertaining Profits and a Few Others

The main objectives of cost accounting can be summarised as follows:

Objective # 1. Ascertaining Costs:

The first and foremost objective of cost accounting is to find out cost of a product, process or service. The other objectives which have been mentioned hereafter can be achieved only when the costs have been ascertained.

Objective # 2. Determining Selling Price:

Business enterprises are run on a profit-making basis. It is thus necessary that the revenue should be greater than the costs incurred in producing goods and services from which the revenue is to be derived. Cost accounting provides information regarding the cost to make and sell such products or services. Of course, many other factors, such as the conditions of the market, the area of distribution, the quantity which can be supplied etc. are also to be given due consideration by the management before deciding upon the price but the cost plays a dominating role.

Objective # 3. Measuring and Increasing Efficiency:

Cost accounting involves a study of the various operations used in manufacturing a product or providing a service. The study facilitates measuring of the efficiency of the organisation as a whole as well as of the departments besides devising means of increasing the efficiency.

Objective # 4. Cost Control and Cost Reduction:

Cost Accounting assists in cost control. It uses techniques such as budgetary control, standard costing etc. for controlling costs. Budgets are prepared well in advance. The standards for each item of cost are determined, the actual costs are compared with the standard costs and variances are found out as to their causes.

This greatly increases the operating efficiency of the enterprise. Besides it, costs are required to be reduced also. Constant research and development activities help in reduction of costs without compromising with the quality of goods or services.

Objective # 5. Ascertaining Profits:

Cost accounting also aims at ascertaining the profits of each and every activity. It produces statements at such intervals as the management may require. The financial statements prepared under financial accounting, generally once a year or half-year, are spaced too far apart in time to meet the needs of the management.

In order to operate the business at a high level of efficiency, it is essential for the management to have a frequent review of production, sales and operating results. Cost accounting provides daily, weekly or monthly volumes of units produced, accumulated costs together with appropriate analysis so that quantum of profit and profitability is known.

Objective # 6. Providing Basis for Managerial Decision-Making:

Costs accounting helps the management in formulating operative policies.

These policies may relate to any of the following matters:

(i) Determination of cost-volume-profit relationship.

(ii) Shutting down or operating at a loss.

(iii) Making or buying from outside suppliers.

(iv) Continuing with the existing plant and machinery or replacing them by improved and economical means.


Objectives of Cost Accounting – 8 Important Objectives: Control of Cost, Determination of Selling Price, To Provide a Basis  for Operating Policy and a Few Others

The important objectives of cost accounting are discussed below:

i) Ascertainment of Cost:

This is the primary objective of Cost Accounting. For the purpose of ascertaining the cost of a product, process or operation, it is necessary to record the expenses incurred, classify them properly and then allocate or apportion it amongst the respective products, processes or departments for calculating total cost of each of these.

If there is only one product, cost per unit can be found out by dividing the total expenditure by the total number of units produced. But if there are many products manufactured, then the cost is to be split up between the various products. For this purpose various techniques may be used.

ii) Control of Cost:

Cost control aims at improving efficiency by controlling and reducing cost. Cost control is exercised at different stages in a factory, viz., acquisition of materials, recruiting and deployment of labour force, during production process and so on.

As such, we have material cost control, labour cost control, production control, quality control and so on. Control over cost is exercised through the techniques of budgetary control and standard costing. In these techniques, cost is controlled by comparing actual cost with predetermined cost. Cost control is becoming more and more important because of growing competition.

iii) Determination of Selling Price:

Cost accounting provides information on the basis of which selling prices of products or services may be fixed. Total cost of production constitutes the basis on which selling price is fixed by adding a margin of profit. Cost accounting furnishes both the total cost of production as well as cost incurred at each and every stage of production.

In fixation of selling price other factors are also important such as market conditions, the area of distribution, volume of sales etc. But no doubt, cost plays the dominating role in price fixation.

iv) To Provide a Basis for Operating Policy:

Cost data to a great extent helps the management in formulating the policies of a business and in decision-making. Hence, availability of cost data is a must for all levels of management. Some of the decisions which are based on cost data are make or buy decision, manufacturing by mechanisation or automation, whether to close or continue operations, inspite of losses, selling below cost decision, introduction of new products etc.

v) Frequent Preparation of Accounts and Other Reports:

Every concern rely upon the reports on cost data to know the level of efficiency regarding purchase, production, sales and operation results. Financial accounts provide information only at the end of the year because value of closing stock is available at the end of the year. But cost accounts provide the value of closing stock at frequent intervals by adopting, “continuous stock verification” system. Using the value of closing stock it is possible to prepare final accounts and to know the operating results of the business.

vi) To Provide Data for Cost Reduction:

For survival in the world of competition, it is necessary to keep the prices of products or services as low as possible. It is only possible when cost of production is less. So the management has to make continuous efforts to reduce the cost. To provide data for cost reduction is one of the important objectives of Cost Accounting. It helps the management in finding out new and improved methods to reduce costs.

vii) Preparation of Cost Estimates:

Many times, it is required to take new jobs by the manufacturing concern or introduce new product as per customer’s requirements. Before manufacturing, cost estimates are to be made. Under cost accounting system, preparation of cost estimates is possible. So the preparation of cost estimates is also one of the important objectives of Cost Accounting.

viii) Standards for Measuring Efficiency:

For measuring the performance of various business activities, management requires some base for evaluating the performance. Standard Cost is one of the means for evaluating the performance. So the development of Standard Cost is also an important objective of Cost Accounting.


Objectives of Cost Accounting – 7 Main Objectives

Cost accounting has many objectives.

The main objectives are:

1. To ascertain the cost per unit of each product/service.

2. To minimize wastage.

3. To determine the selling price.

4. To compute the profit or loss made on each product, department or process.

5. To ascertain the profitability.

6. To provide data for inventory valuation.

7. To set up perpetual inventory system.

Cost centre – A cost centre is defined as a location, a person or an item for which cost may be ascertained and used for the purpose of cost control. A cost centre may be a location, an area, a customer or an item of machinery to which cost are allocated for the purpose of cost ascertainment and cost control.

Cost unit – It is defined as a product, service or time in relation to which costs may be ascertained and expressed. It is the unit of quantity of product, service or time in terms of which costs can be conveniently computed. It is a unit of measurement of cost.


Objectives of Cost Accounting – To Ascertain Cost, To Control Cost, Determination of Selling Price, Determination of Costing Profit, Ascertain the Profitability and a Others

1. To Ascertain Cost – Cost ascertainment involves first the collection and classification of expenses. Those expenses which are easily identified with products or departments are allocated. Other expenses not capable of direct allocation are apportioned on some basis. In this way, cost of production of goods is ascertained.

2. To Control Cost – This is considered as secondary objective but in modern times it is very primary & important in almost every business. Control over cost is required at the time of purchase of material, issue of material, recruitment & turnover of labour, production process, its quality etc. There are various techniques for control like Budgetary Control, standard costing, inventory control etc.

3. Determination of Selling Price – Cost Accounting provides per unit cost information (with the help of cost sheet) on the basis of which selling price of products or services may be fixed. In the period of depression, cost accounting guides that to what extent the selling price may be reduced to face the situation.

4. To Provide Information for Business Policy and Decision Making -Cost data provide information for various managerial decisions like –

i. To make or buy a Raw Material component.

ii. To retain or replace an existing machine.

iii. Selling below cost.

iv. Utilization of idle plant capacity.

v. Introduction of new product

5. Determination of Costing Profit – Cost accounting aims at calculation of costing Profit or Loss of an activity or product by matching cost with the revenue of that activity.

6. To Ascertain the Profitability – Cost Accounting also helps to ascertain the profitability of each of the products and advise the management as to how these profits can be maximized.


Objectives of Cost Accounting – 10 Important Objectives

The following are the main objectives of cost accounting:

1. To ascertain cost (cost of production) of every unit, job, process, service or department.

2. To control cost by using various techniques such as budgetary control, standard costing and inventory control.

3. To help management in taking decisions based on CVP relationship (cost volume profit).

4. To identify costing profit.

5. To identify stock of raw material, semi-finished and finished goods as and when required.

6. To study profit relationship based on capacity operations (say profit at 60% or 80% operating capacity).

7. To compare actual cost with budgeted cost to identify the variances.

8. To help the management in budgetary control.

9. To ascertain sales mix to maximise profit.

10. To facilitate preparation of financial and other statements.


Objectives of Cost Accounting – To Ascertain and Analyse Costs, Control Cost, Fix the Selling Price, Reduce Cost, Prepare Periodic Statements and Provide Information

The objectives of cost accounting are:

(i) To ascertain and analyse costs – The primary objective of cost accounting is to ascertain and analyse costs incurred on the production of various products, jobs and services, etc.

(ii) To control cost – Cost accounting has developed various techniques such as standard costing and budgetary control for controlling costs.

(iii) To fix the selling price – Cost accounting provides reliable data on the basis of which selling prices can be fixed.

(iv) To reduce cost – Of late, the objectives of cost accounting have been extended to reducing costs. Under the cost reduction plan, products, processes, procedures, organisation and methods are continuously scrutinized to improve efficiency and reduce costs. Value analysis, time and motion study, standardizations, simplification, etc., are important techniques of cost reduction.

(v) To prepare periodic statements – Under cost accounting system monthly or quarterly cost statements of periodic review of operating results are prepared.

(vi) To provide information – Cost accounting provides useful information for planning and control and for taking various decisions regarding increase in production, installation or replacement of a machine, making or buying of a component, continuing or closing down of a business, etc.


Objectives of Cost Accounting – Cost Ascertainment, Cost Control, Determination of Selling Price, Determination of Profit and Providing Basis for Business Policies

Objective # 1. Cost Ascertainment:

This is the primary objective of cost accounting. Cost knowing or cost finding is cost ascertainment. The technique of ascertaining the cost is known as costing and cost is ascertained by using any one of the methods or techniques of costing.

Objective # 2. Cost Control:

Its purpose is to improve efficiency by controlling and reducing cost. It is done by using standard costing technique to make comparison of budgeted cost and actual cost.

Objective # 3. Determination of Selling Price:

The supply or the tender price of a product is fixed on the basis of total cost plus a margin of profit. Cost accounting provides detailed information to what extent the selling price can be reduced during the time of depression.

Objective # 4. Determination of Profit:

The objective of cost accounting is to ascertain the profitability of the activities carried out or planned in a systematic manner. If any difference of profit is analyzed as per the estimation made, the efforts are made to earn the maximum profit at its capacity.

Objective # 5. Providing basis for Business Policies:

It helps the management regarding-

(a) Introduction or discontinue of product

(b) Utilization of idle plant capacity

(c) Dumping of goods in a foreign market at cheaper rate

(d) Selection of most profitable or product mix

(e) Purchase of new plant or continuing with the old plant at the cost of repairs etc.


Objectives of Cost Accounting – To Ascertain Cost, To Fix Selling Price, To Control the Cost, To Measure and Improve Performance and a Few Others

Costing, Cost Accounting and Cost Accountancy differ from one another in terms of theoretical definition. In practice however all the three mean the same. Similarly, the objectives of Costing are the same as objectives of Cost Accounting and Cost Accountancy.

Therefore the following objectives may be considered as the objectives of Costing, Cost Accounting as well as Cost Accountancy:

1. To Ascertain Cost – Costing aims at ascertainment of the cost of manufacturing goods in terms of both – the total production as well as a single unit manufactured. This is done by using various methods to suit different situations and products. Such cost ascertained becomes the basis of managerial decisions.

2. To Fix Selling Price – Every organization has to fix and quote its selling price in terms of one unit for all its products. The basis for all its price fixation is the calculation of cost price.

3. To control the cost – Every organization has to improve its efficiency by reducing the costs. Costing provides comprehensive information and a sound basis for control of costs and their reduction at a later stage.

4. To aid the management in its decision making – The management of every organization has to take crucial decisions such as price fixation, price hike, price reduction, capacity utilization, introduction of new products, withdrawal of existing products, make or buy etc. All these decisions need information, which can be made available only by costing.

5. To measure and improve performance – Costing provides information to an organization to measure its performance and also improve the same by setting standards.

6. To identify sources of wastage of materials, labour etc. and enable the management to reduce them.

7. To provide information to the management relating to profitability and also enable its maximization.

8. To enable the management to exercise effective control over raw-materials, semi-finished goods and finished goods and ultimately reduce the investment in these.

9. To facilitate the conduct of cost audit.

10. To guide the management in formulation of employee motivation plans such as bonus schemes, incentive schemes etc.


Objectives of Cost Accounting

Following are the objectives of Cost Accounting:

1. To find out the actual cost per unit manufactured by the concern.

2. To compute the Profit/Loss made on each product, department, and process carried out by the business by comparing with its revenues.

3. To disclose the exact reasons for profit & loss during particular period.

4. To provide data for inventory valuation.

5. To disclose wastages of resources & causes for wastages & to make measures to control the wastages.

6. To provide the correct analysis of costs by departments, processes, different elements of cost for analyzing cost trends.

7. To know the profitability of each planned activity.

8. To provide the data for fixing the selling prices of the products.

9. To provide the data for comparison of costs & performance between different periods.

10. To help the preparation & implementation of wage & incentive plans for workers.