Role of Cost Accountant | Cost Accounting - B Com PDF Download

The Responsibilities of a Cost Accountant

After understanding the concepts, classifications, elements, methods, and types of costing, it becomes crucial to comprehend the responsibilities of a cost accountant, a role distinct from that of a financial accountant.

• Supporting Top Management in Cost-Related Decisions: Cost accountants aid top management by providing essential cost reports such as product costs, profitability, breakdown, and variance analysis.
• Preparation and Maintenance of Cost Records: Cost accountants are responsible for maintaining distinct cost records for legal purposes, separate from financial accounts.
• Performing Cost Control Functions: They execute cost control activities as instructed by senior management, contributing to the identification and implementation of corrective measures based on provided reports.

Roles of a Cost Accountant in an Organization

Establishing a Cost Accounting Department

• Setting up a dedicated department within the organization for cost accounting purposes.

Identifying Necessary Cost Information

• Determining the types of cost information required by managers at various organizational levels.

Developing a Cost Accounting Manual

• Creating a manual outlining department functions and form formats for information procurement and dissemination.

Performing Key Functions:

• Cost Ascertainment: Classifying costs into direct and indirect categories, including further breakdowns of indirect costs like factory overheads, administration overheads, and selling and distribution overheads.
• Cost Comparison: Establishing standards for cost elements and finished products to compare standard costs with actual costs, identifying variances and reasons behind them for corrective actions.
• Cost Reduction: Analyzing costs for decision-making processes such as make or buy choices, manpower allocation, infrastructure investment, or outsourcing, focusing on optimizing performance.
• Cost Control and Reporting: Formulating strategies for cost control, preparing cost reports to assist executives in performance review and identifying areas for targeted control measures.

Summary

• Cost ascertainment is a crucial process in accounting. It involves determining the amount of expenditure (whether actual or notional) incurred or attributable to a product, job, process, or service. Cost is a flexible concept and can vary with time, volume, firm, method, or purpose. It is important to differentiate cost from 'loss,' which refers to expenditure incurred without deriving any benefit.
• Costs can be classified in various ways. Based on their function, costs are divided into manufacturing costs, administrative costs, and selling and distribution costs. Based on their identifiability with products, costs are categorized into direct costs and indirect costs. Depending on their variability in relation to the nature of output, costs are classified as fixed costs, variable costs, and semi-variable (or semi-fixed) costs.
• Two key concepts for cost computation are: (i) cost unit, and (ii) cost centre. A cost unit refers to the quantity of a product in terms of which costs are ascertained, such as per kilogram, per dozen, or per piece. A cost centre is a division within the organization with defined responsibilities where initial allocation and apportionment of various costs can be made, facilitating cost control. It can be a department, a person, or an item of equipment.
• There are three basic elements of cost: (i) materials, (ii) labour, and (iii) expenses. These elements can be either direct or indirect. Indirect costs, including indirect materials, indirect labour, and indirect expenses, are collectively known as 'overheads.' Overheads are typically classified into factory overheads, office overheads, and selling and distribution overheads.
• The main components of total cost are prime cost, works cost, cost of production, and cost of sales. These components represent the stages in determining the total cost and facilitate control. There are various methods of costing, including: (i) job costing, (ii) contract costing, (iii) batch costing, (iv) unit costing, (v) process costing, (vi) operating costing, (vii) multiple costing, and (viii) uniform costing. Each organization adopts the method that suits the nature of its products and production techniques.
• The role and responsibility of a cost accountant differ from those of a financial accountant. A cost accountant's role encompasses establishing a cost department, preparing costing reports, controlling costs, and ensuring the effective utilization of resources.