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Elective Advanced Cost and Management Accounting

Advanced Cost and Management AccountingTU Board 2081

What are the features of cost accounting?

2

Answer

· Based on the official syllabus and past papers
Updated

Cost accounting is a specialized branch of accounting that focuses on measuring, analyzing, and controlling costs to aid management in decision-making. Its key features include:

Quantity (Units)Cost/Revenue (Rs.)OTotal Revenue (TR)Total Cost (TC)Break-even PointQ*P*
Break-even analysis: Fixed cost (Rs. 20) + Variable cost (Rs. 5/unit) vs. Revenue (Rs. 10/unit). Break-even occurs at 4 units.
Manufacturing Overhead AllocationDr.Cr.To Work-in-Progress A/c15,000To Finished Goods A/c10,000By Production Wages8,000By Rent & Utilities7,000By Depreciation5,000By Other Overheads5,00025,00025,000
Example allocation of overheads to production and finished goods accounts.
Direct Materials (30%)Direct Labour (25%)Variable Overheads (20%)Fixed Overheads (25%)
Typical cost structure in manufacturing (example: 30% materials, 25% labor, 20% variable overheads, 25% fixed overheads).
  1. Cost Measurement and Recording: It involves recording and analyzing costs of production, administration, and selling.
  2. Cost Control: It helps in controlling costs by identifying cost variances and taking corrective actions.
  3. Decision-Making: Provides relevant cost information for decision-making, such as pricing, make-or-buy, and product mix.
  4. Cost Allocation: Allocates overheads to cost centers and products using techniques like absorption costing.
  5. Special Purpose: Designed for internal use by management, unlike financial accounting, which is for external stakeholders.
  6. Cost Classification: Classifies costs into direct, indirect, fixed, and variable for better analysis.
  7. Use of Techniques: Employs techniques like marginal costing, standard costing, and budgetary control.
  8. Focus on Efficiency: Aims to improve efficiency and profitability by optimizing resource utilization.

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