April 18, 2021


Accounting + Finance Blog

Seven brief explanations of the Objectives of Cost Accounting

Seven brief explanations of the Objectives of Cost Accounting

The use of cost accounting data and information exists for certain purposes. Costing the common objective is to help managers make efficient and effective decisions. However, the objectives can be bribe broadened seven. A brief explanation objective is given below.

Objectives of costing

Here are seven of the objectives of cost accounting

Cost Ascertainment: Calculating the cost of a product is a major aspect of cost accounting. In doing this, absorption costing is used. Here all costs relating to producing the goods or putting the goods into usable forms are considered including fixed cost.

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Cost ascertainment does not only ascertaining product cost. It also ascertaining service cost, process cost, the cost of each department of a firm usually divided into cost centers.

Product Pricing: Cost accounting data can provide useful information that can be used to calculate the price of a product. The price of a product is ascertained by adding direct cost and a portion of the direct cost of the firm. Knowing the price of a product is useful. It helps the business know the amount of profit it should expect from such a product.

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Employee Promotion and Reward: The results provided by costing data, usually called key financial performance index, can be used to measure the input of each employee. With such information, management can know which employee to reward favorable through promotions and other benefits. And the one to demote or relieve.

Cost Control: Controlling cost is a major aspect of cost accounting. Various costs, such as material cost and labor cost can be controlled through the data provided within the firm’s costing system. Controlling involves natural steps.

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The first step is knowing the expected result of a course of action. The second step is to calculate the actual result of the course of action. Next, observe the variance (or differences) between the expected result and actual result. The final step is to take decisive action.

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Cost Savings: This is an important objective of costing. To cost, a thorough examination of the cost system will be reviewed and analyzed. Any activity that is not required to achieve the objective of the business is eliminated. Thereby saving cost.

Planning and Budgeting: The cost accounting system of a firm is used for future plans. In doing so, a budget is made to reveal the future cash flow, financial and performance, and the financial position of the firm. In planning and budgeting, the future cost is utilized.

Decision Making: All objectives mentioned above bore down to decision making. In setting product pricing a decision must be made. So, it is in cost savings, planning and budgeting, and every other aspect already discussed. The management or directors or owners, as the case may be, will have to decide the optimal alternative choice from a list of choices.

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The list above is not exhaustive. Next, the function of cost accounting will be discussed.

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