Which of the following correctly describes the scope of cost accounting?

Solution

Cost accounting is the accounting method for ensuring cost-effectiveness by accumulating, organising, recording, calculating, analysing and assessing the overall expenses incurred on a product, process or project, etc. Cost accounting aims at eliminating the loopholes in the production process and ensures manufacturing of goods at the lowest possible cost. The scope of cost accounting is wide and includes: ·         Cost Analysis : Cost accounting determines the deviation of the actual cost as compared to the planned expense, along with the reason for such variation. ·         Cost Audit : To verify the  cost sheets  and ensure the efficient application of cost accounting principles in the industries, cost audits are done. ·         Cost Report : Cost reports are prepared from the data acquired through cost accounting to be analysed by the management for strategic decision making. ·         Cost Ascertainment : To determine the price of a product or service, it is essential to know the total cost involved in generating that product or service. ·         Cost Book Keeping : Similar to financial accounting;  journal entries , ledger, balance sheet and profit and loss account is prepared in cost accounting too. Here, the different cost incurred is debited, and income from the product or service is credited. ·         Cost System : It provides for time to time monitoring and evaluation of the cost incurred in the production of goods and services to generate cost reports for the management. ·         Cost Comparison : It examines the other alternative product line or activities and the cost involved in it, to seek a better opportunity for generating high revenue. ·         Cost Contol : Sometimes, the actual cost of a product or service becomes higher than its standard cost. To eliminate the difference and control the actual cost, cost accounting is required. ·         Cost Computation : When the company is engaged in the production of bulk units of a particular product or commodity, the actual per-unit cost is derived through cost accounting. ·         Cost Reduction : It acts as a tool in the hands of management to find out if there is any scope of reducing the standard cost involved in the production of goods and services. Its purpose is to obtain additional gain.