Q.1. Define the term Costing ?
A, The I.C.M.A, London, has defined costing as “the ascertainment of costs”. So, it refers to the techniques and process of ascertaining cost. It also studies the principles concerning the determination of costs of products and services. Different types of costing are used in different industries, such as historical costing, absorption costing, marginal costing, standard costing.
Q.2. State the three most important need for Cost Accounting ?
A. 1. Ascertainment of cost of product: Product cost is ascertained through the mechanism of cost accounting. For this purpose, various costing methods are applied.
2. Determination of selling price: A business unit is required to determine the selling price at which its products are to be sold. In doing so, a unit should fix up the selling price for its products in such a way so that the costs of the product are recovered. Moreover, in fixing selling prices, regard must be had to the cost structure, conditions of the market, types of consumers and the demand and supply of the product.
3. Analysis and classification of cost of production: Cost Accounting helps to analyse and classify various items of cost incurred which lead to the revelation of various forms of waste, whether of materials, time or expense. Analysis of the causes of unsatisfactory results may suggest possible remedial measures to attain efficiency in the utilization of resources.
Q.3. What are the advantages of Cost Accounting?
A. (i) The cost accounting system provides data about profitable and unprofitable products or activities. By studying and interpreting cost data, the management can take corrective measures to improve the profitability of the concern.
(ii) Production methods may be changed or improved so that costs can be controlled to increase profits.
(iii) Cost data helps the management in minimising the loss and wastages.
(iv) Cost data and information are provided to the management to determine the price of the product.
(v) Cost data can be compared with the standard costs by the introduction of standard costing. Inter-firm comparisons will enable the management to study the causes of unfavorable developments and to institute procedures for their elimination.
Q.4. What are the principles Costing System ?
A. Every undertaking which wants to install costing system has to design the system in such a manner so that it can satisfy the needs of the concern. But there are certain principles which are to be considered before the introduction of costing system.
The principles are:
(a) The existing organisation of the unit should be disturbed as little as possible;
(b) It is better to introduce the system gradually with an eye to the needs of the organisation;
Q.5. Describe the utilities of Cost Centre ?
A. Cost centres have the following utilities:
(i) Cost centres identify the spheres of responsibilities. The manager of a particular cost centre is assigned the responsibility for the control of costs in relation to that particular cost centre. He remains accountable to the higher authority for cost escalation or wastage.
(ii) Cost centres are meant to assemble all costs at one area for which a common base of recovery can reasonably be used.