Plus, the per unit fixed cost changes as the production increases or decreases. It is concerned with totality of expenditure and revenue rather than its functional analysis. The scope of cost accounting involves the preparation of various budgets for an organization, determining standard costs based on technical estimates, finding and comparing with actual costs, ascertaining the reasons of by etc. Understanding these two types of costs is important since we would be using these costs in calculation of cost of sales per unit for a particular product. Period to period cost comparison also helps cost control. The accountant may make a detailed report so that the manager may make decisions based upon it. These advantages are summarized below: Advantages to Management : i Errors in following costing principles and techniques are detected.
For some companies, audits are a legal requirement due to the compelling incentives to intentionally misstate financial information in an attempt to commit fraud. The aim of such type of audit is that the Government wants to ascertain the relationship of costs and prices. Instead of using standard costing, activity based costing, cost-plus pricing, or other management accounting systems, when using lean accounting those methods are replaced by and lean-focused performance measurements, for example, using a box score to facilitate decision making and create simplified and digestible financial reports. Liabilities can be divided into current liabilities and long term liabilities. Even if the production increases or decreases, the business needs to pay the same rent month in and month out. Whether or not the projected expenditure could give the optimum results. This function is vested in the financial adviser for a control over the utilisation of available finance in case of government organisations.
Raw Materials and Stores: a. It comprises of verification of cost accounting records such as, the accuracy of the cost accounts, cost reports, cost statements, cost data, costing techniques, and examining these records to ensure that they adhere to the cost accounting principles, plans, procedures and objectives. Save contact details for your suppliers to quickly enter and auto-fill your expenses and stay on top of the accounting for your business. Cost Audit is mainly a preventive measure, a guide for management policy and decision, in addition to being a barometer of performance. When an auditor audits the accounts or inspects key financial statements of a company, the findings are usually put out in a report or compiled in a systematic manner.
Cost Audit will establish the accuracy of cost of each product, job, activity, etc. Cost Audit Report Rules, 1996 : 1 The company and every officer shall make available the Cost Accounting Records to the Cost Auditor for the purpose of Cost Audit within 90 days from the end of the financial year. Utilities Steam, Power, Water : a. Traditional cost accounting essentially allocates cost based on one measure, labor or machine hours. This is important since management allocates limited resources to particular projects or production processes. It is the simplest example but cost can be of anything which is measurable in terms of money. Semi-variable costs are the combination of fixed costs and variable costs.
The Companies Act, 1956 was amended by the Companies Amendment Act, 1974 introducing section 233B empowering the Central Government to order audit of cost accounts for which maintenance of Cost Accounts was prescribed in respect of companies engaged in production, processing, manufacturing or mining activities under section 209 1 d such particulars relating to utilization of material, labour or other items of cost as may be prescribed. Cost Accounting This term is of utmost importance for the top management of any business. Let's understand Accrual accounting with the help of an example. As opposed to Financial Accounting, which determines the profit for the whole organisation made during a particular period. The aim of cost audit under statute seems to be that the Government wishes to know, as an instrument of control, the costs of various goods.
On the other hand, Financial Accounting is mandatory for all the organisations, as well as compliance with the provisions of Companies Act and Income Tax Act is also a must. The contribution margin is calculated by dividing revenue minus variable cost by revenue. Once the units are sold, the costs are charged to the. Find out the cost of sales per unit. If results in heavy expenditure.
In contrast, managerial accounting analyses and results are kept in-house for business leaders to use to drive decision-making and run the company more effectively. Objectives of Cost Audit 3. Fixation of Responsibility Responsibility centers is fixed under cost accounting system. Cost Accountants should stay abreast of new developments in accounting technology and trends, to ensure efficiency and effectiveness. From this, data and estimates emerge.
Cost audit offers many advantages to management, cost accountant, shareholders, statutory auditor, consumers and the government. Private consultants will often be called upon to perform services for small or mid-sized businesses that cannot substantiate the full-time employment of a cost accountant. Meaning and Definitions: Cost Audit is a critical review undertaken to verify the correctness of Cost Accounts and to check that cost accounting principles and planning have been efficiently followed. Definition: When transactions are recorded in the books of accounts as they occur even if the payment for that particular product or service has not been received or made, it is known as accrual based accounting. There is a possibility that you may not have received the payment by cash at that particular point in time. Treatment and determination of abnormal losses of gains or treatment of certain expenses as direct or indirect are cases in point. Existence of such a system of audit will also be of great use for maintaining internal check and control and will be of great help to even financial audit.