Scope And Limitations Of Cost Accounting Homework Help
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Scope And Limitations Of Cost Accountancy
The scope of cost accounting is very wide and includes the following:
- Cost Ascertainment: it deals with the collection and analysis of expenses, the measurement of production of the different products at the different stages of manufacture and the linking up of production with the expenses. In fact, the varying procedures for the collection of expenses give rise to the different systems of costing as Historical or Actual costs, Estimated Costs, Standard Costs, etc. Again the varying procedures for the measurement of production have resulted in different methods of costing such as Specific Order Costing, Operation costing, etc. for linking up of production with the expenses the different techniques of costing such as Marginal Cost Technique, the Total Cost Technique, Direct Cost Technique etc. have been evolved. All the three i.e. systems, methods and techniques can be used in one concern simultaneously.
- Cost Accounting: it is the process of accounting for cost which begins with recording of expenditure and ends with the preparation of statistical data. It is formal mechanism by means of which costs of products or services are ascertained and controlled. Cost can be ascertained either by following the historical or predetermined system of costing. Cost can be predetermined either by standard costing or estimated costing. If the cost and financial accounts are kept separately then their reconciliation is also to be done in order to verify the accuracy of both sets of accounts.
- Cost Control: Cost Control is the guidance and regulation by executive action of the costs of operating an undertaking. It aims at guiding the actual performance towards the line of targets; regulates the actuals if they deviate or vary from the targets; this guidance and regulation is done by an executive action. The cost can be controlled by standard costing, budgetary control, proper presentation and reporting of cost data and cost audit.
The following are the main limitations of cost accounting:
- Cost accounting lacks a uniform procedure. It is possible that two equally competent cost accountants may arrive at different results from the same information. Keeping in view this limitation, all cost accounting results can be taken as mere estimates.
- There are a large number of conventions, estimates and flexible factors such as classifications of costs into its elements, issue of materials on average or standard price, apportionment of overhead expenses, arbitrary allocation of joint costs, division of overheads into fixed and variable costs, marginal costs into normal and abnormal and controllable and non-controllable and adoption of one cost is suitable for all purposes and under all circumstances.
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