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By Vishal Goel
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i ÔBC Pvt. Ltd, a new comer in small manufacturing firm of formals

and casuals wears. Product range includes, shirts and T- Shirts (Full &
Half sleeves), trousers and jeans, cargo͛s, etc͙
i Ôs it is a newly introduced firm, the burden is on the Finance
Manager of deciding the Ôccounting method for maintaining books of
Ôccount in a factory.
i By considering all the factors determining cost, such as cost structure,
condition of market, type of consumer, area of distribution, capacity
of supply, product͛s demand & supply, etc͙
i Manager has to decided to follow the Cost Ôccounting for
maintaining factory Ô c or Manufacturing Ô c.
i Cost Ôccounting does not includes physical stock-taking, but it
includes detailed & relevant cost figure of closing stock, raw material,
work-in-progress and Finished goods.
i Which helped the manager to find out most suitable and accurate
cost per unit. These also helped him to avoid - material wastages, use
of obsolete machinery, poor planning, etc͙

i They took control over material, labour and overhead expenses, and
started discussing day-to-day operations of business, so they can take
remedial actions. Moreover, introduction of a cost reduction
programme combined with operational research and value analysis
leads to improvement in economic as well as financial condition of
the firm.
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èue 1: How cost Ôccounting helps the firm in determining the Selling
Price?
èue 2: Ôccording to you, by adopting Cost Ôccounting method, Can a
firm prepare a Financial Statement?
èue 3: Which kind of operating policy decision can we take by using
Cost Ôccounting Method?
èue 4: From the case, what are the benefits Ôdvantages enjoyed by a
firm, by adopting Cost Ôccounting?
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èue 1: How cost Ôccounting helps the firm in determining the Selling Price?

i Ôns : Cost accounting provides detailed and relevant cost

figures for determining the selling price of products or
services.
i In fixing selling prices. However, regard must be had to the
cost structure, condition of the market, the type of consumer,
the area of distribution, the quantity, which can be supplied,
the demand for the product and supply thereof.
i Ô cost accountant should not only accurately ascertain the
total cost but also analyze such total cost under variable and
fixed cost so that management may quote prices even below
total cost but above variable or marginal costs for increasing
volume of sales leading maximization of profit.
èue 2: Ôccording to you, by adopting Cost Ôccounting method, Can a
firm prepare a Financial Statement?

Ôns: In order to prepare financial statements it is required to

determine the stock-values at the end of the period over
which such financial statements are to be prepared.
Physical stock-taking is a lengthy procedure and the business has
to be closed down for stock-taking purpose.
Where cost accounts are kept, the ascertainment of the value of
closing stocks of raw materials, work-in-progress and finished
goods become easy and as such financial statements can be
prepared monthly or even weekly.
èue 3: Which kind of operating policy decision can we take by using
Cost Ôccounting Method?

i Ôns: These policies may be-

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i Determination cost-volume-profit relationship;
i Whether to shut down or operate at a loss;
i Whether to make or buy from outside suppliers; and
i Whether to continue with the existing plant and machinery or
to replace them by improved and economic ones.
èue 4 : (4) From the case, what are the benefits Ôdvantages enjoyed
by a firm, by adopting Cost Ôccounting?

i Ôns: They are as follows ---

i Establishment of more accurate unit costs, a knowledge of
which results in establishment of fair selling prices and in the
elimination of unprofitable lines of product.
i Elimination of inefficiencies in plant operation. These
inefficiencies are costly and arc caused by material wastage,
use of obsolete machinery, poor planning, or assignment of
men to work for which they are not qualified.
i Presentation of more frequent and more accurate financial
accounts with the help of perpetual inventory system of stock
control.