Objectives to Cost Accounting

Some angles are averse to cost accounting. They put forward the following arguments against the installation of a costing system in an industrial establishment.

(i) The system is quite expensive because analysis, allocation and apportionment of costs and absorption of overheads require considerable amount of clerical work.

(ii) The results shown by the cost accounts differ materially from those shown by the financial accounts. Preparation of reconciliation statements frequently is necessary to verify their accuracy. This leads to unnecessary increase in work load.

(iii) Costing system itself does not control costs or improve efficiency. If the management is alert and efficient it can control costs without the aid of this system. This is, therefore, unnecessary.

Rebuttal of objections: These arguments are untenable. The system will not provide to be expensive if it is introduced after taking into account technical details and advice of technical personnel of the business. Moreover, as stated above, costing helps in minimizing costs by avoiding wastes at all stages. Thus, it will be a profitable investment and it will be wrong to call it expensive. Difference between results shown by cost account and financial account arises on account of over and under absorption of overheads, methods of material pricing used and treatment of other incomes. An integrated system of accounts can help in elimination of these differences. The costing is a must for each manufacturer because each manufacturing process requires use of material, labour etc. in this stage, of competition and globalization, a manufacturer must know the exact cost not only of each article made but also of each process involved in its production so that he may be in a position to avoid waste and minimize its cost. It is possible only when proper costing records are maintained. Hence, it is wrong to say that it is unnecessary.

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