Unit 1 Cost Accounting 2 Mark Q&A

Elements of  Cost Accounting 

2 Mark Important Question & Answer

1. Define Cost Accounting.

I.C.M.A has defined Cost Accounting as follows:

"The process for accounting for cost from the point at which expenditure is incurred or committed to the

establishment of its ultimate relationship with cost centres and cost units. In its widest usage, it embraces the

preparation of statistical data, the application of cost control methods and the ascertainment of the profitability

of activities carried out or planned."

2. What is Costing?

The system of calculating the cost is called costing. This cost may be actual or estimated. We know that we go

to different steps of production when we produce any product. At every stage of production, we need to calculate

the cost of raw materials, labor cost and direct and indirect cost. We allocate the different expenses under a

system and this system is called costing.

3. What is a Profit Centre?

A profit center is a business unit or department within an organization that generates revenues and profits or

losses. Management closely monitors the results of profit centers, since these entities are the key drivers of the

total results of the parent entity. The manager of a profit center usually has the authority to make decisions

regarding how to earn revenue, and which expenses to incur

4. What is a cost center?

A location, person, or item of equipment for which costs may be ascertained and used for the purposes of cost

control. Cost center is a term that includes various, departments - both production and service departments -

processes, work orders, operations, machines, etc.

5. Write a short note on cost analysis.

The act of breaking down a cost summary into its constituents and studying and reporting on each factor

The comparison of costs (as of standard with actual or for a given period with another) for the purpose of

disclosing and reporting on conditions subject to improvement.

6. Explain cost reduction.

The achievement of real and permanent reduction in the unit cost of goods manufactured or services rendered

without impairing their suitability for the use intended. Cost accounting is helpful to management in cost

reduction through the techniques of budgetary control, standard costing, material control, labour control and

overheads control.

7. Define the term "Cost".

Cost denotes the amount of money that a company spends on the creation or production of goods or services.

It does not include the mark-up for profit.

From a seller's point of view, cost is the amount of money that is spent to produce a good or a product.

From a buyer's point of view the cost of a product can be called the price. This is the amount that the seller

charges for a product, and it includes both the production cost and the mark-up cost, which is added by the

seller in order for him to make a profit.

8. Give any two limitations of cost accounting.

a. Cost accounting is expensive. It involves lots of clerical work for maintaining various costing records for

different purposes.

b. Procedures of cost accounting followed by different organisations are different for different products.

There is no uniformity.

9. Give any two objectives of Cost Accounting.

Ascertainment of cost 

Determination of selling price