Evolution And Development Of Cost Accounting

Widespread growth of industrialization in the western world during the last half of the 19^th century gave rise to the development of cost accounting.  With the advent of the factory system, necessity for accurate cost information was felt to bring efficiency in production.  In spite of that, there was slow development of cost accounting during the 19^th century.  To quote Eldon S. Hendriksen, “Not until the last 20 years of the 19^th century was there much literature on the subject of cost accounting in England and even then very little was to be found in the United States.  Most of the literature until this time emphasized the procedures for the calculation of prime costs only”.

Several reasons for the late development of cost accounting can be attributed as given below:

• Overheads (i.e. indirect costs) constituted a small part of total cost in the early period of the factory system as costly machinery was uncommon during these days.  Necessity of cost accounting is felt more if overheads from a significant portion of total cost.
• A tendency among the cost accountants to keep their costing methods strictly secret was also responsible for slow development of cost accounting.
• Until the late 19^th and early 20^th centuries, manufacturing processes were simple and firms were producing a small variety of products.  Because of these facts also, development in cost accounting also slow.

The most rapid development in cost accounting took place after 1914 with the growth of heavy industry and mass production methods when costs (i.e. overheads) other than materials and labour constituted a significant portion of the total cost of production.  The scientific management movement led by Taylor gave impetus to the development of cost accounting because it contributed to the use of standard costs in planning manufacturing operations and in evaluating performances.

The development of cost accounting in India is of recent origin and it started gained importance after the independent of the country when the Indian Government started laying emphasis on the Industrial development of the country.  Further, provisions of cost audit under section 233 B of the Companies Act have given impetus to the development of cost accounting in India.  The Vivian Bose Enquiry Commission brought to light the various malpractices prevalent in the manufacturing establishments and it was thought that the financial audit is the audit of financial accounts at the end of the year was insufficient to judge the real efficiency of working and manufacturing organizations as a result, the concept of cost audit emerged to get the best utilization of the resources of the country, which are used in the manufacturing organizations and the government was given the power for ordering cost audit under section 233 B of the Companies Act, 1956.