CWA/ICWA :: Cost Accountant Accountancy : An understanding

01. Who is a Cost Accountant? What is Cost Accountancy?

What would you tell a prospective student about cost accountancy? This is what we need to explain in trying to make a person understand what a cost accountant and cost accountancy is. To have an understanding on what a cost accountant does, you have to understand some relevant aspects which are explained below. Please be patient enough to read through. It would give you a clear understanding of what a cost accountant is?

What is the motive of business?

Profit is the basic motive for any business man. The objective of business is to maximise profit. It does not mean that the business has to and can do anything and everything to earn profits.

A business will have to look out for ways and means to earn more profits and at the same time honour its social obligations.

Increase Profits!!

Consider a company manufacturing a product at Rs 150 per piece and selling it at Rs 230 per piece. It is making a profit of Rs 80 a piece. It is at present selling 10,000 units and thereby making a profit of Rs 8,00,000.

The company is now wanting to earn greater profits. It has set itself a target of Rs. 10, 00, 000. It has identified that it cannot immediately increase the quantity of sale.

How to increase the profits??

Increase Selling Price!!

Now for achieving its objective the company may increase the selling price to Rs 250 and earn a profit of Rs 100 a piece. However in this competitive market, there is no guarantee that the sales would not go down if the price is increased. The basic economic principle says demand decreases as price increases.

By increasing the price the company is meddling with factors relating to the external environment which inevitably have other implications.

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This may not enable the company to achieve its objective. There is also a risk of the current sales going down i.e. the company losing customers.

Reduce Costs!!

However, there is an alternative available for the company which is cost control. What happens if the company is able to manufacture the same product (at the same or even better quality) at a lesser cost. The company would be able to achieve the anticipated profit without having to lose customers as it is only handling the internal factors which are within its own hands.

If by controlling cost the same product can be manufactured at the same quality or even better quality at Rs 130 a piece, the company would benefit a lot and this will also enable it to achieve the targeted profit.

How to reduce Costs?

This process of reducing costs involves using the accounting and quantitative techniques to take decisions which would ultimately result in cost reduction.

Wastages in raw materials used, labour, less productive manufacturing methodologies etc., will be identified and corrective steps taken to benefit the organization.

Objective with which a cost accountant works

This is what a cost accountant is supposed to do. This will also benefit the society at large by conserving precious resources used in manufacturing..

In such industries as the governments feel appropriate, maintenance of cost accounting records is made compulsory and all such organisations have to get their records certified by a practicing cost accountant.

This is generally done in industries which use precious natural resources whose conservative and efficient use is a requirement for the society as a whole.

Even here one needs to understand that this is not the only objective and function performed by a cost accountant.

Author Credit : Team Future Accountant

Cost Accountant/Accountancy :: An understanding