What is the Objective of Cost accounting?

Cost accounting aims at the systematic recording of expenses and analysis of the same to ascertain the cost of each product manufactured or service rendered by an organization. Information regarding the cost of each product or service would enable the management to know where to economize on costs, how to fix prices, how to maximize profits and so on.

Thus, the main objective of cost accounting is the following:

• To analyze and classify all expenditures concerning the cost of products and operations.
• To arrive at the cost of production of every unit, job, operation, process, department or service and to develop cost standard.
• To indicate to the management any inefficiencies and the extent of various forms of waste, whether of materials, time, expenses or in the use of machinery, equipment and tools. Analysis of the causes of unsatisfactory results may indicate remedial measures.
• To show, where standard costs are prepared, what the cost of production ought to be and with which the actual costs which are eventually recorded may be compared.
• To present comparative cost data for different periods and various volumes of output.
• To provide data for periodical profit and loss accounts and balance sheets at such intervals, e.g., weekly, monthly or quarterly, as may be desired by the management during the financial year, not only for the whole business but also by departments or individual products. Also, to explain in detail the exact reasons for profit or loss revealed in total, in the profit and loss account.
• To reveal sources of economies in production having regard to methods, types of equipment, design, output, and layout. Daily, weekly, monthly or quarterly information may be necessary to ensure prompt and constructive action.
• To provide actual figures of cost for comparison with estimates and to serve as a guide for future estimates or quotations and to assist the management in their price-fixing policy.
• To provide information to enable management to make short-term decisions of various types, such as quotation of price to special customers or during a slump, make or buy decision, assigning priorities to various products, etc.
• To provide a perpetual inventory of stores and other materials so that interim profit and loss account and balance sheet can be prepared without stock-taking and checks on stores and adjustments are made at frequent intervals. Also to provide the basis for production planning and for avoiding unnecessary wastages or losses of materials and stores.