Introduction to

Management and Cost

Accounting
 Current News

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 Learning Outcome

• Analyze the relationship between cost and

managerial accounting and how they
are compartmentalized within modern
businesses

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 What is Cost??
• Cost is an expenditure required to produce
or sell a product or get an asset ready for
normal use.

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 Costing
• Costing is defined as the technique and process
of ascertaining costs.

For example: If the cost of producing a product say Rs. 200 is recorded
in the books, then we have to refer material, labour and expenses and
arrive at the above cost :

Finding out the breakup of the total cost from the recorded data is a daily
process. In this process we are classifying the recorded costs and
summarizing at each element and total is called technique.
 Cost Accounting
Cost accounting is concerned with Recording,
Classifying and Summarizing costs for determination
of costs of products or services, planning, controlling
and reducing such costs and furnishing of information
to management for decision making

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 Let’s See how cost
accounting helps to control
cost!!

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Case Study- Decision Making at
Southwest Airlines
• Southwest Airlines is the largest airline measured by
number of passengers carried each year within the
United States. It is also known as a ‘discount airline’
compared with its large rivals in the industry. The airline
began with one simple strategy: “If you get your
passengers to their destinations when they want to
get there, on time, at the lowest possible fares, and
make sure they have a good time doing it, people
will fly your airline.” This approach has been the key to
Southwest’s success.

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• The company has recorded 45 consecutive years of
profitability which is remarkable in an industry which is
very cyclical and has seen plenty of bankruptcies.

• The overall airline industry was in shambles but, how does

Southwest Airlines was in profitable position?

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 Answer
The two biggest operating costs for any airline are –

a) Labor costs (approx 40%)

b) Fuel costs (approx 18%)

Southwest Airlines ascertained the cost and found the

similar issue that the whole industry was facing. The
labour cost and fuel cost was too high.

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 Cont…
Table: Southwest airlines operating
expenses

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 Cont…

Southwest Airlines adopted

certain strategies to control
those costs!!
 Cont…
• Strategy to control fuel cost : Fuel hedging
strategy. If airlines can control the cost of fuel
(fuel hedging), they can more accurately
estimate budgets and forecast earnings.

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 Cont…
• Strategy to control labour cost : Cross-
utilization of virtually all employees for
higher labour productivity

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 Cont…
Some other ways that Southwest is able
to keep their operational costs low is-
• flying point-to point routes, choosing
secondary (smaller) airports, carrying
consistent aircrafts, maintaining high
aircraft utilization, encouraging e-ticketing
etc.

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Objectives of Cost Accounting
 Ascertainment of costs

 Estimation of costs

 Cost control and Cost reduction

 Determining selling price

 Facilitating preparation of financial and other statement

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Limitations of Cost Accounting
Complex

Expensive

Inconsistency

Not applicable to small scale business

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 Quiz!!

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The scope of cost accounting include----,-----
and-----
A. Cost ascertainment, cost presentation, cost
control
B. tax planning, tax accounting, financial
accounting
C. presentation of accounting information,
creation of policy, day-to day operation
D. none of the above

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The main purpose of cost accounting is to
provide detailed cost information to
………………. .
A.Internal users
B.External users
C.Income tax department
D.Customer through news paper

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Cost accounting disclose ------ 
A. The Financial position 
B. profit/loss of a product, job or service 
C. effect and impact of cost on business 
D. none of these

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Which of these is not an objective of Cost
Accounting?
• (a) Ascertainment of Cost
• (b) Determination of Selling Price
• (c) Cost Control and Cost reduction
• (d) Assisting Shareholders in decision
making

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 THANK YOU

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