Cost Management Important Question for bba/b.com

Cost Management Question

Q1. What are cost accounting? Differentiate between cost  and financial accounting

Ans- Cost accounting is the process of determining and accumulating the cost of product or activity. It is a process of accounting for the incurrence and the control of cost. It also covers classification, analysis, and interpretation of cost. In other words, it is a system of accounting, which provides the information about the ascertainment, and control of costs of products, or services. It measures the operating efficiency of the enterprise. It is an internal aspect of the organisation. Cost Accounting is accounting for cost aimed at providing cost data, statement and reports for the purpose of managerial decision making. The Institute of Cost and Management Accounting, London defines “Cost accounting is the process of accounting from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centres and cost units. In the widest usage, it embraces the preparation of statistical data, application of cost control methods and the ascertainment of profitability of activities carried out or planned”. Costing includes “the techniques and processes of ascertaining costs.” The ‘Technique’ refers to principles which are applied for ascertaining costs of products, jobs, processes and services. The `process’ refers to day to day routine of determining costs within the method of costing adopted by a business enterprise. Costing involves “the classifying, recording and appropriate allocation of expenditure for the determination of costs of products or services; the relation of these costs to sales value; and the ascertainment of profitability”

Sl no.	basis	Cost accounting	Financial accounting
1	Meaning	Cost accounting is used to calculate cost of the product and also helpful in controlling cost. In cost accounting, we study about variable costs, fixed costs, semi-fixed costs, overheads and capital cost.	Recoding of transactions is part of financial accounting. We make financial statements through these transactions. With the help of financial statements, we analyze the profitability and financial position of a company.
2	Purpose	To  calculate cost of each unit of product on the basis of which we can take accurate decisions.	Purpose of the financial statement is to show correct financial position of the organization.
3	Recording	In cost accounting, we book actual transactions and compare it with the estimation. Hence costing is based on the estimation of cost as well as on the recording of actual transaction	Estimation in recording of financial transactions is not used. It is based on actual transactions only.
4	Controlling	Cost accounting done with the purpose of control over cost with the help of costing tools like standard costing and budgetary control.	Correctness of transaction is important without taking care of cost control.
5	Period	Reporting under cost accounting is done as per the requirement of management or as-and-when-required basis.	Period of reporting of financial accounting is at the end of financial year.
6	Reporting	In cost accounting, minute reporting of cost is done per-unit wise.	In financial accounting, costs are recorded broadly.
7	Fixation of selling price	Cost accounting provides sufficient information, which is helpful in determining selling price.	Fixation of selling price is not an objective of financial accounting.
8	Relative Efficiency	Relative efficiency of workers, plant, and machinery cannot be determined under it.	Valuable information about efficiency is provided by cost accountant.
9	Valuation of Inventory	Cost accounting always considers the cost price of inventories.	Valuation basis is ‘cost or market price whichever is less’
10	Process	Cost of sale of product(s), addition of margin and determination of selling price of the product.	Journal entries, ledger accounts, trial balance, and financial statements

Q2.What is cost Sheet.Give a detailed format of it with an example ?

Ans-  Cost sheet is a statement, which shows various components of total cost of a product. It classifies and analyses the components of cost of a product. Previous periods data is given in the cost sheet for comparative study. It is a statement which shows per unit cost in addition to Total Cost. Selling price is ascertained with the help of cost sheet. The details of total cost presented in the form of a statement is termed as Cost sheet. It analysis and classified the expense on different items for a particular period in a tabular form.Additional columns may also be provided to show the cost per unit pertaining to each item of expenditure and the total cost per unit.In other word cost sheet is a periodical document of cost sheet is show the total cost and unit of cost of products in an analytical and detailed form.

Cost sheet may be prepared weekly , monthly, quarterly ,half yearly or yearly basis according to convenience.Cost sheet is prepared on the basis of actual data or on the basis of estimated data depending on the technique of costing.

Definition Of cost Sheet : ICMA london “Cost Sheet is a document which provide for the assembly of estimated detailed cost in respect of cost center or a cost of unit.”