1. Rayat Shikshan Sanstha’s S. M
Rayat Shikshan Sanstha’s S.M. Joshi College, Hadapsar, Pune-28 Department of Commerce S.Y.B.Com Cost & Works Accounting-I
Prepared by Prof. Gulave R. G.

2. Cost and Works Accounting-I
Basics of Cost Accounting

3. Origin of Cost Accounting -
Cost Accounting is the branch of accounting. It is developed due to industrial development and the limitations of Financial Accounting.
In ancient days production was made according to the family needs and therefore there was no need to maintain accounts. But after the industrial revolution in 18th century importance of accounting and cost accounting increased.
Due to large scale production there was competition among the producers for selling there products. This lead to the development in the marketing and each producer was trying to produce his product with maximum efficiency and at lesser cost. Because of all these factors cost accounting was started as a separate branch of accounting.
Scientific Management approach developed by F. W. Taylor gave more importance to cost accounting because it contributed to the use of standard cost in planning manufacturing operations.
In the beginning cost accounting was ascertaining the cost of product or service. But in modern times cost accounting provides valuable information to the management for decision making.

4. Concepts of Cost, Costing , Cost Accounting and Cost Accountancy
Total of all expenses incurred, whether paid or outstanding (due)in the production and sale of product or giving services.
Cost= Material Expenses +Labour Expenses +
Other Expenses
Material
Quantity kg.
Cost
Rs./kg
Total Cost Rs.
Sugar
150 40
6000
Flour
120 10
1200
Oil 90
900
Total Cost
8100

5. To ascertain cost 2.Costing-
ICMA London defines Costing as “ The technique and process of ascertaining Cost.”
Costing includes methods, principles, rules and regulations which are required to ascertain the cost of product or service.
Methods
Principal
Rules
To ascertain cost

6. 3. Cost Accounting -
Cost Accounting is the branch of accounting which includes the application of accounting principles relating to recording , classifying and analyzing of cost in the organization.
Cost Accounting is the formal accounting system in which costs are ascertained by recording them in the books of accounts.
In simple words Costing means finding out the cost of product or service and Cost Accounting means recording the costing transactions using costing.

7. 4. Cost Accountancy-
Cost Accounting is the application of Costing and Cost Accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability.
Cost Accountancy is a very wide term. It consists of Costing, Cost Accounting, Cost Control, Cost Audit and budgetary control.
In short Cost Accountancy is an art, science and practice of cost accountant.

8. Objectives of Cost Accounting:-
1. Ascertainment of Cost
2. Determination of selling Price
3. Cost Control & Cost Reduction
4. Setting of Standards for measuring efficiency
5. Ascertain the profit of each activity
6. Elimination of wastages
7. To Assist management in decision Making
8. Preparation of cost estimates
9. Preparation of Accounts and Reports
10. To establish system of internal cost audit
11. To provide the basis for production planning
12. To provide basis for operating policy

9. Advantages of Cost Accounting -
A) Advantages to Management:-
B) Advantages to Investor / Owner :-
C) Advantages to Workers/ Employee :-
D) Advantages to Customer / Consumer:-
E) Advantages to Government:-

10. A) Advantages to Management:-
1. Shows Profitable and Unprofitable Activities
2. Helps to ascertain the cost
3. Helps in decision making
4. Helps in cost control and Cost reduction
5. Helps in inventory control
6. To determine selling price
7. Shows causes of increase and decrease in profit
8. Check the accuracy of financial accounts
9. Facilitates planning
10. Help to prevent frauds
11. Shows idle capacity

11. B) Advantages to Investor / Owner :-
Advantages of Cost Accounting
B) Advantages to Investor / Owner :-
1. Increase in Profit
2. Increase in the Market Value of shares
3. Boost the confidence of investor
4. Security of investment

12. 1. Increase in remuneration (Wages/Salary)
Advantages of Cost Accounting
C) Advantages to Workers/ Employee :-
1. Increase in remuneration (Wages/Salary)
2. Efficient workers get high wages
3. Increases productivity
4. Bonus and Rewards

13. D) Advantages to Customer / Consumer:-
Advantages of Cost Accounting
D) Advantages to Customer / Consumer:-
1. Good Quality Products and Services
2. Reasonable prices
3. Helps to reduce inflation
4. Increase standard of living

14. E) Advantages to Government:-
Advantages of Cost Accounting
E) Advantages to Government:-
1. Provides right information to tax authority
2. Helps in planning
3. Provide data to solve various problems like Price fixation, Price control wage level fixation etc.

15. Limitations of Financial Accounting -
1.Records only historical Information
2.No classification of expenses and cost
3. Shows only overall performance of Business
4.Not useful to fix selling price
5.Not useful for cost control
6.Not useful for material control
7.No data for comparison and decision making
8.No analysis of losses
9.Not helpful to Management