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NATURE AND PURPOSE OF COST ACCOUNTING-QA
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NATURE AND PURPOSE OF COST ACCOUNTING: QUESTION AND ANSWERS. BEST CPA EXAM REVISION KIT
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NATURE AND PURPOSE OF COST ACCOUNTINGQUESTION 1
a) Describe four shortcomings of cost accounting.
QUESTION 2
a) The success of an organisation in cost control and cost reduction depends largely on the
installation of an ideal cost accounting system which identifies, classifies and records all costs
accurately and promptly.
Required;
With reference to the above statement, explain four conditions for an effective costing system.
QUESTION 3
a) Describe five ways in which cost accounting complements financial accounting in terms of
providing information to managers for better decision making.
QUESTION 4
a) Daniel Mutiso, the Cost Accountant of Abra Ltd. feels that he is getting overworked and has
recommended that a management accountant be employed to take up other responsibilities in
the organization.
However, the management of the company equally argues that the work is the same and that a
decision to hire a management accountant is against their cost reduction policy.
Required:
In the light of the above statement, explain to the management three differences between management
accounting and cost accounting to help them make a fair decision.
QUESTION 5
(a) Cost accounting is often described as the provision of information required by management
for specific purposes"
Required:
State six of these specific purposes.
ANSWERS
QUESTION 1
a) Shortcomings of cost accounting
- Leads to duplication of work and may be a burden to the organisation.
- Unsuitable for uniform application as each industry operates under unique circumstances.
- It is not cost effective. Installation and operation of a cost accounting system requires
huge initial capital outlay.
- Stereotyped and mechanical since it involves filling in a large number of forms
continuously, unless modern systems are installed.
- Excessive estimation. Cost computation involves a large number of convention estimations,
arbitrary allocation of joint costs. No costs are exact and may give a misleading picture of
the organisation.
- Unsuitable for all purposes. The computation and presentation of particular costs depend
on the purpose for which the data is required.
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