A controller is an individual who has responsibility for all accounting-related activities within a company including managerial accounting and finance. But the cost system, in the modified form, can be adopted to suit the special requirements of an industry. Cost Accounting has certain limitations. There is also possibility of difference in pricing material issues for production. Because earning of more profit does not necessarily means low cost of production and no scope for further reduction in it. Limitations of historical cost accounting Financial statements prepared on the historical cost basis do not necessarily lead to a true and fair presentation of an entity’s performance or future potential if capital is not being maintained. This, obviously, is not the fault of the system but the way in which it is taken up for implementation.

It is expensive and requires reconciliation with financial accounts. So in order to access company performance, we require to have more internal reports such as the comparison between budget and actual sale, budget and actual cost, and profit. It is a unit of quantity of product, service or time or a combination of these in relation to which costs are expressed or ascertained.
Moreover, the purpose of costing is not only to find out the cost, but also to try to introduce cost reduction schemes, which bring adequate return to the firm. In order to solve these problems, managements need more information besides the financial statements, and it required the management report from cost accountant. But, in costing, it is not mere estimates. Cost Accounting is not an exact science and there is no such thing as “True Cost” in the world because of the following conventions and estimations-. The plea of inapplicability, however, is not very apt; what really is at fault is an attempt to foist an unsuitable system or to try to introduce or work a system suitable for a particular type of industry but in environments or on lines, relating to a particular factory, which are not suitable for that system. Objectives of Cost Accounting 3. Moreover, there are many formalities to be observed by firms; and the establishment costs may be heavy to be afforded by medium size concerns. Limitation of Cost (APR 1984) (a) The parties estimate that performance of this contract, exclusive of any fee, will not cost the Government more than (1) the estimated cost specified in the Schedule or, (2) if this is a cost-sharing contract, the Government's share of the estimated cost specified in the Schedule. But the fact remains that there are no real disadvantages of the system itself. Cost Accounting accounts for the costs of a product, a service or an operation. Not Applicable to Many Industries 6. It is not an exact science rather based on theories and accounting practices. The cost unit selected in each situation will depend on a number of factors including the purpose of cost ascertainment exercise and the amount of information available. This may be true but in the present world of competition, to conduct a business with utmost efficiency, the management needs to know detailed cost information for decision-making.

It is claimed that Costing system has failed to bring good or desired results in many cases.

All business enterprises cannot make use of a single method and technique of costing. Cost accounting is described as the evaluating approach to the overall cost of when the business evaluates the cost that is associated with the business. Unless benefits of procuring information exceed the cost, it should not normally be sought. However simple the system might be, if it can be worked well, even special types of industries are bound to reap the benefits of cost accounting. rice production. Cost accounting was originally developed in manufacturing firms, but financial and retail institutions have adopted it over time. Of all the arguments advanced against cost accounting, the argument that it involves a considerable amount of expenditure appears to be the most powerful. But it is a fact that the people prefer to have electricity fitted in their houses, and in pain and agony of disease, rush to hospital for recovery, for the simple reason of their utility and service to mankind. The disadvantages of the cost accounting system arise only if the system is not applied with caution and care. Cost Accountancy is the application of accounting and costing principles, methods and techniques in the ascertainment of costs and the analysis of savings and/or excess as compared with previous experience or with standards.

It is not merely one system of forms and statements. Failure to maintain normal output results in overhead expenses not being recovered in full. The modern industries are passing- through highly competitive conditions, and as such every manufacturer should know the actual cost in order to fix the selling price, at the minimum. The purpose of cost accounting is to analyze the business performance, prepare costing, budget in order to support management decisions. If this principle is faithfully observed, there is no possibility of the cost accounting system being costly. It excludes some of the items of expenses though they are accounted for in the Financial Accounting system.

This argument is fallacious. According to them, two cost accountants give different results from the same information. However, before installing it, care must be taken to ensure that the benefits derived are more than the investment made on this system of accounting. 7. Costing systems come in flexible packages.

When business is not difficult to secure, many manufacturers are able to show profit notwithstanding the leakages which pass unchecked; but, in periods of cut-throat-competition, concealed inefficiencies have to be checked and rigorous controls must be exercised to ensure even modest margins of profit. 2. Disadvantages Of Historical Cost Accounting 2546 Words | 11 Pages. The adoption of proper system into practice through cooperation of the personnel will not be a failure.

An auditor is a person authorized to review and verify the accuracy of business records and ensure compliance with tax laws. The discussion will focus on the debate on using which accounting approach. Actual cost varies from estimated cost. This is what he calls the ‘cost-benefit’ approach. It is a useful measurement of costs for comparative purposes. Content Guidelines Confusion Regarding Non-Cost Items 12. Cost Accounting Lacks Uniformity – Some people oppose it because of lack of uniformity. So the accountant can prepare a report base on the actual situation which can respond to the management need. ix) Failure in many Cases – It is argued that the adoption of costing system failed to produce the desired results in many cases and so it was not effective. Because, in order to ascertain the cost of goods and services, it is necessary to use a number of estimates, bases for apportionment, etc. Then, it becomes necessary for every manufacturer to know what is his cost of production and how far he can mark down his selling price. are the causes for failure, and for these, the costing system should not be blamed. The accountant will classified all the costs into each category and analyze them and provide a proper report to management, which will help them make adequate decisions. 5. When time passes, the forms are to be revised to make them up-to-date and fewer in numbers. Image Guidelines 4. Account Disable 11. Even in the case of absolute monopoly, sub­stitutes may appear in the market. In fact, applications of costing are very wide. It involves lots of clerical won for maintaining various costing records for different purposes.

Everything you need to know about the limitations of cost accounting. Content Guidelines 2. The cost accounting method, which assesses a company's production costs, comes in a few broad styles and cost allocation practices. 7. Repeated failures on previous occasions is an indicator of more serious troubles to come and, hence, the need for an urgent installation of a proper system of cost accounting. A modified costing system has to be devised to suit the concern and not the business to suit the system. Again, the fact that a concern is efficient does not mean that it would be so forever. Besides the various advantages of cost accounting system, it suffers from certain limitations which are as follows: i) Expensive – Highly paid cost accountants and the organisation of costing system Involve additional expenditure. Although costing principles are the same, costing procedures being different, cost of production of two concerns may not be the same, in spite of their product being the same.

e)Result requires reconciliation: Information and results provided b; financial accounting and cost accounting may be different for the as activity. The reasons for its failure should be probed. This, however, does not mean that the system itself is bad. However, we can not do benchmarking on management reports as they are not publicly available from other company and they are using a different format which is best fits their business. Our mission is to liberate knowledge. But a specific costing system may be designed according to the needs of business. Hence, the cost of goods and services is influenced by all these.

It is Unnecessary 3. d)Expensive: Cost accounting is expensive. Hence, Cost Accounting is not unnecessary but a necessity for both survival and growth.

Managerial need for auditing, so essential for safeguarding assets, is not satisfied by cost accounting. A ‘cost unit’ is a unit of product or unit of service to which costs are ascertained by means of allocation, apportionment and absorption. Not Suitable for Small Scale Units: Limitation # 6. The fault lies in an attempt to introduce a readymade costing system in an industry. Analysis, allocation, apportionment and absorption of overheads, in costing increase clerical work. 4. It is essential in understanding the costs of running any enterprise.

Costing system itself does not control on cost. The system of cost accounting involves additional expenditure to be incurred in installing and maintaining it. The unit of output in relation to which cost incurred by a cost centre is expressed is called ‘cost unit’. The unsuited costing system will naturally bring failure. The cost accounting system should be economical and the cost of its operation should be commensurate with the advantages accruing from it. Controlling in Management # Meaning, Definition, Types, Process, Steps and Techniques. Taking into consideration the benefits conferred by a modern cost accounting system, the argument that it is unnecessary does not hold good.