Financial Accounting: The Purpose Of Cost Accounting

Cost accounting is a structure of determining the costs of services or products. It has fundamentally created to address the issues of administration. It gives exhaustive information about the cost to various levels of administration for proficient execution of their operations. Finance accounting gives data about profit, loss etc., of the combined activities of the business. It doesn't give the information with respect to expenses by departments, products and processes so on. Financial accounting does not completely consider the losses because of idle time, idle plant capacity, labour inefficiency, poor raw materials, etc. Cost accounting deals with the determination of past, present and future expenses of products produced (Barbee 1993). It gives elaborative cost information to various levels of management for proficient execution of their operations.

Each small section is considered as a cost centre of which cost is determined. A cost centre is known as “a location, person, or item of equipment for which costs may be estimated and utilized for the purpose of control”. The cost control is the main objective of estimating the cost of cost centre. Cost unit divides the cost into smaller sub-categories and helps in estimating the cost of products or services.

Cost estimation is concerned with calculation of actual costs. Ascertainment of actual costs uncovers non-profitable exercises or activities and losses. Cost evaluation is the process of foreordaining expenses of products or services. The costs are estimated in advance of manufacture of the product. Estimated costs are the future costs and are based on the mean value of the past actual costs which is adjusted for future anticipated changes in future. These are used in the preparation of the budgets and evaluating the performance (Cooper & Kaplan RS 1988; Barbee