## Objectives of Cost and Management Accounting

There are five main objectives. Each builds on the previous — you cannot price, control, or decide without first knowing costs.

### 1. Ascertainment of Cost

Accumulate and determine costs for various cost objects (units, jobs, processes, departments).
Identifies the cost of producing goods or providing services.
This is the starting point — you must know what things cost before you can manage them.

### 2. Determination of Selling Price and Profitability

Assists in setting appropriate selling prices for products or services.
Enables assessment of profitability for different cost objects.
Provides a basis for pricing strategies and negotiations.

### 3. Cost Control

Ensures disciplined spending by comparing actual costs with predetermined standards.
A four-step cycle:

1. Set standards

2. Measure actual performance

3. Analyse variances (differences between actual and standard)

4. Take corrective action

Aims to achieve cost efficiency and maintain profitability.

### 4. Cost Reduction

Seeks sustainable reductions in unit costs without compromising quality.
Analyses activities to identify:
Value-added components → keep and improve
Non-value-added components → eliminate
Encourages continuous research for optimal manufacturing or service methods.

### 5. Assisting Management in Decision Making

Provides relevant information to aid in planning, implementation, and control of activities.
Helps management evaluate performance of different organisational areas.
Bridges the gap between raw data and actionable management decisions.

Worked example

### Example 1

A company finds that its actual material cost is ₹50 per unit vs a standard of ₹45. It investigates a supplier price increase and negotiates bulk purchase terms. Which objective is being served?

Answer: Cost Control — actual costs are measured against standards, a variance is identified (₹5 unfavourable), and corrective action is taken.

### Example 2

After process analysis, a manufacturer eliminates a redundant inspection step that added no value to the product, permanently lowering per-unit cost. Which objective is this?

Answer: Cost Reduction — a non-value-added activity is eliminated to sustainably reduce unit cost.

⚠️ Common exam mistakes

Listing 'recording costs' as an objective — that is a function/scope, not an objective. Objectives describe what cost accounting achieves (ascertainment, pricing, control, reduction, decision support).
Treating Cost Control and Cost Reduction as the same objective — Control maintains costs within standards; Reduction seeks to lower the standard itself permanently.

Reference:

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