Introduction to Cost and

Management Accounting

Vikram Mohite, Ph D
Associate Professor.
Objectives of this session
state the meaning and scope of cost
accounting;
explain the objectives of cost accounting
differentiate between cost accounting and
financial accounting
state importance of cost accounting
state importance of cost accounting
Introduction
Financial Accounting: Objectives and
Contents
Limitations of Financial Accounting
◦ Does not provide detailed cost information
◦ No control over misappropriation,
misutilisation, scrap of materials and supplies
◦ No classification of jobs, processes, products
and departments
◦ Difficult to know behavior of cost
◦ No help in prediction as data is historical
Costing
Includes techniques and processes of
ascertainment of costs.
Simply relate to finding the cost.
Technique = methods = Job & Process
Process = determining cost within the
methods = marginal, standard, absorption
Cost Accountancy
ICMA, London defines -
Application of costing and cost accounting
principals, methods, and techniques
To cost control, ascertainment of
profitability and facilitating decision making
It includes costing, cost accounting,
budgetary control, cost control and cost
audit.
Cost Accounting
Tool of management
Provides detailed records
Relating cost, product, operations.
Process of determining and accumulating
the cost of product or activity
Includes cost classification, analysis and
interpretation of cost.
Scope of Cost Accounting
1. Cost book-keeping
2. Cost system
3. Cost ascertainment
4. Cost Analysis
5. Cost comparisons
6. Cost Control
7. Cost Reports
Objectives of Cost Accounting
1. Determining selling price
2. Controlling cost
3. Providing information for decision-
making
4. Ascertaining costing profit
5. Facilitating preparation of financial and
other statements
DIFFERENCE BETWEEN FINANCIAL ACCOUNTING AND
COST ACCOUNTING
1. Importance to Management
◦ Helps in ascertainment of cost
◦ Aids in Price fixation
◦ Helps in Cost reduction
◦ Elimination of wastage
◦ Helps in identifying unprofitable activities
◦ Helps in checking the accuracy of financial
account
◦ Helps in fixing selling Prices
◦ Helps in Inventory Control
◦ Helps in estimate
2. Importance to Employees
3. Cost accounting and creditors
4. Importance to National Economy
5. Data Base for operating policy
Limitations of Cost Accounting
Itis expensive
Preparation of reconciliation
Involves duplication of work
Costing system itself does not control
costs
Cost Accounting and Management
Accounting
 Mainly concerned
with cost and price
data.  Application of
accounting
 Limited to product techniques to help all
costing procedures levels of
management
 Not confined to
 Helps management in
product costing
planning and
 More relates to
controlling cost.
creation of data pool
 Helps management in
total situation
The End