Scope of Cost Accounting
1. Costing: Costing is the process of ascertainment of costs of any product or service. Costing is governed by several principals, rules and guidelines. Cost can be ascertained by using standard, operation, process cost. When the word accounting is connected to cost, it gets extended to accounting of costs with formal methodology in order to provide better insights to the management.
2. Cost Classification: Cost Accounting classify the costs associated with the production of goods and services. Cost Classification involves identifying both the direct costs such as materials and labor and the indirect costs such as overhead and administrative expenses, and allocating them to specific products or services in order to gather true results.
3. Cost Analysis: Cost Accounting deals with the factor of finding the variance and analysis of reason for such variances between actual and pre-established standards. It helps to take better cost management decisions and strategic decisions.
3. Budget Formulation: Cost accounting is also used to develop budgets and forecasts for future. By analysing historical cost data and current market environment, cost accountants can develop realistic projections of future costs and revenues, which can help businesses make informed decisions about their business operations.
4. Cost Records: In some instances, there is a statutory obligation to keep cost records available with the management as notified by the statutory and regulatory authorities. Cost records might be required to gather information regarding material, labor and overhead usage in business.
5. Cost Audit: Cost Audit involves a detailed examination of the cost accounting records of a business, as conducted and checked by an independent auditor. The cost audit aims to verify the accuracy and validity of the cost accounting information and ensure that the business is complying with relevant regulations and standards. The auditor provides a report of the audit findings and recommendations for changes as well.