Overview to Cost and Management

Accounting

In todays business world, the resources available are

very scarce.
Hence, every business unit must strive hard to obtain
maximum output with the available input in order to
ensure the optimum utilization of scarce resources.
The value of input is measured against the value of
output.
In the present era of cut-throat competition, the need
to study this subject is growing very fast.
Every businessman makes a constant effort to improve
his/her business.

Waste management at hospital

All waste from the district hospital is gathered and
thrown into piles behind the main hospital building.
Every six months, the hospital director hires some
laborers to shovel the waste into trucks and cart it
off to the closest dump, which is located in a
neighboring town. Frequently, people pick through
the waste looking for items that they can use or sell,
children play near the waste, and dogs are commonly
seen poking their noses in the piles.
Who is at risk of infection from these practices?
How can the waste-disposal problems here be solved?

The staff who dispose of the waste, the laborers who cart the
waste away, and members of the community in the
neighboring town who scavenge or play in the waste are at
risk. The community at large is also at risk from the spread of
infection by animals that have access to the waste.
The waste disposal problems here can be solved by:
Sorting medical waste from general waste at the point at
which it is generated to reduce the amount of waste requiring
special handling
Building an incinerator or digging a pit to burn or bury the
medical waste
Removing the waste more often
Educating staff and the community about proper waste
disposal
Ensuring that people and animals do not have access to the
waste while it is stored at the hospital.

Machine specifications
2. Cost of machine and maintenance required.
3. Utility consumption (electricity, water, labor etc)
4. Production cost
5. Details of raw materials (input, output, wastage)
6. Technical training and assistance required.
7. Total project investment
8. Return on investment

Cost may be defined as

1. the amount of expenditure (actual or
notional) incurred on or attributable to a
given thing, or
2. to ascertain the cost of a give nthing

Costing is the techniques and process of ascertaining

costs .
Cost unit is a quantitative unit of product or service
in relation to which costs are ascertained.
Cost unit is a unit of product or unit of service to
which costs are ascertained by means of allocation,
apportionment and absorption.
Cost object is any activity for which a separate
measurement of costs is desired

Cost accounting is the process of accounting

for cost.
Cost accounting is generally concerned with
internal reporting for management
requirement.
The development of cost accounting is of
recent origin.

The Chartered Institute of Management

Accountants, U.K. (CIMA) defines costing as
the technique and process of ascertaining
costs.
Costing is a tool to determine the cost of
products or service.
Cost accounting analysis and classification
of costs or expenditure.
Cost accountancy application of costing and
cost accounting principles.

Cost Accounting is to serve management in

the execution of policies and in the
comparison of actual and estimated results
in order that the value of each policy may be
appraised and changed to meet the future
conditions.
To calculate cost per unit
To prepare a correct cost analysis
To ascertain the wastage in each process

manufacture
To provide necessary information for the
determination of selling price

of

 To compute

product-wise profit
To serve the management in the valuation of W-I-P
To install and implement cost control systems
To advice management for future expansion
To establish an effective reporting system
To guide the management in the preparation and
implementation of incentive schemes based on
productivity and cost savings.

The functions of financial accounting are

concerned with that of bookkeeping, i.e.
maintenance of records of costs, debtors,
and creditors, etc.
As per the company law requirements, the
company has to maintain the accounts for
their adoption by the shareholders in the
Annual General Meeting.

Financial accounting doesnt aims at

continuous reporting of financial data, which
the cost accounting does
Financial accounts will not reveal the data by
jobs, process, products, etc.
It provides only historical data, and it would
be too late for any corrective action.
It does not provide data for adequate control
over materials, labour, and overheads.
In financial accounting, there are no systems
to set predetermined estimates, standards,
or budgets.

Purpose
Forms of Accounts
Recording
Items of Costs
Analysis of Profits
Control
Periodicity
Nature of Transaction
Inventory Valuation
Figures

To quote J. Batty, Management Accountancy is

the term used to describe the accounting
methods, systems and techniques, which coupled
with special knowledge and ability, assists
management in its tasks of maximizing profits
or minimizing losses.
Management Accountancy is the blending
together into a coherent whole, financial
accounting, cost accountancy and all aspects of
financial management.
Management Accounting is an extension of
managerial aspects, of cost accounting.
Thus, it is the accounting to assist the
management in planning and decision-making.

A great variety of accounting information is available to managers.

The accountant chooses the information to be reported to a manager by:

The accountant has to identify the specific purpose for which cost
accounting information is required by the manager.
Information is relevant if it

Identifying the purpose for which the information is needed.

Determining the relevance of the information.

Affects the accomplishment of the objectives of the decision maker.

Will change as a result of the decisions or choice made by the deci- sion maker.

Historically, the Management Accountant was known as Controller since

he/she was in charge of all financial accounting and cost accounting
functions.
Line managers are directly responsible for attaining this objective as
efficiently as possible.
When a departments primary task is to advise and serve other
departments in the organization, it is a staff department.

Controller

Treasurer

Planning and Controlling

Procurement of Long term

Finance

Reporting and Interpreting

Investor

Evaluating and Consulting

Short Term Financing

Tax Administration

Banking

Government Reporting

Credits and Collections

Protection of Assets

Investments

Economic Appraisal

Insurance

To determine the actual cost of each article, process, operation, service,

department or segment of activity.
To reveal and report inefficiencies in the form of material wastage, loss
of time in material buying, storing, and issuing.
To provide actual figures of cost comparison with estimates of costs and
price fixing.
To find out the degree of efficiency and productive capacity of men and
machines and ideal standard for their working.
To implement incentive wage plans for workers.
To reduce cost through budgetary control and standard costing.
To study trends at different volumes of output, and to determine
production policies and programs.
To ensure continuous check and adjustment of stores and materials with
the help of perpetual inventory.
To organize internal audit system, and interlocking of financial and cost
accounts to verify the accuracy of each other.
To furnish necessary data for the preparation of profit and loss account
and balance sheet at short intervals [e.g., monthly, quarterly, etc.] for
each department or business as a whole.

Price Fixation
Control on Unprofitable Activities
Useful Information
Cost Control
Provides Valuable Data
Effective Check
Preparation of Budgets and Regulations of
production
Fixation of Responsibilities
Independent Check
Prevention of Manipulation, misappropriation,
and frauds

Expensive
Differences in Results
Unnecessary
Worthless
Inapplicability

Every concern must design its own costing

system, keeping in view its peculiar
problems.
If financial books can afford the necessary
information, separate costing system is not
needed.
Reasonable accuracy is enough, of course,
this depends upon the nature of industry.
As a rule, costing information should be
collected as and when the work proceeds.

Simple and Easy

Should suit the organization
Co-ordination and co-operation among
executives
Ensure proper accounting and allocation of
material
Cost accounts should be able to reconcile
with Financial accounts
It should be Economical

To the Management
Planning
Organizing
Controlling
Budgeting
Decision-making
Pricing
Evaluation

of operating efficiency

To the Employees
Incentive

Bonus
Higher earnings through time and motion study
Overtime payments
Benefit of job evaluation
Continuous employment and job security

To the creditors

To the government

Can access more information in comparison to

Financial accounts
To ascertain the solvency, profitability
More taxes through higher production
Useful in preparing import and export policy

To the society

Lower prices through cost reduction

Better quality of products and services