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Limitations of Cost Accounting

>> September 11, 2012

I am not in the favor of arguments which are written in different cost accounting books and which show the limitation of cost accounting. My aim is not just writing a book which covers the syllabus of any university. Here my aim is to tell the truth and what is it in the reality.

Just writing the 10 to 12 points of limitations of cost accounting, we can not close the growing area of knowledge of cost accounting. Actually, this topic should be in the end of syllabus but it is kept in the beginning of syllabus. Now, I come to the limitation of cost accounting, what the authors say :

The limitations of cost accounting are as follows:

1. Some Say that System of Cost Accounting is more Complex 

Ask this question from those who fly in the airplane or rocket. They enjoy in its learning, so they learn to fly the airplane. It is the weakness of the cost accounting teacher who do not teach the cost accounting properly. Otherwise, cost accounting is very enjoyable subject. Every person who wants to reduce the cost will surely study the cost accounting. Cost accounting system uses the rules and formulas for ascertaining the cost and control over cost. Formula is the formula and rule is the rule. Suppose, for knowing the difference between actual cost of material and standard cost of material, we need to know material cost variance formula. If you will not learn it and will start to say that cost accounting is more complex. It means, you do not want to learn the rules of driving car and person gives you the car. What will you do? There is 100% possibility of accident. So, leave to speak complex. It is the language of illiterate. If one teacher is unable to teach you cost accounting. Leave him. Learn from second teacher. It means, when you study day by day from different sources. You will understand the topics of cost accounting. At that time, you will not cram the cost  accounting formulas but you understand them.

 2. Some Say that It is expensive

Some say that it is expensive. for installing and maintaining cost accounting system, we need man power. It is one of the foolish argument for telling the limitations of cost accounting. Today, you are learning cost accounting. In future, you will become the cost accountant. Your duty will be to install and maintain the cost accounting system, at that time, do you like to listen this argument. Yes, it is expensive, if the manpower will not be expert. They do not know to use the techniques of cost accounting for better decision making. At that time, there is not any limitation of cost accounting but it is the limitation of HR department who has appointed such staff. Every wrong decision may increase the cost of each product. Every wrong decision may decrease your goodwill. So, compare the benefits of cost accounting long run. Trust in your cost accountants. They all want your growth.

3.   Some Say that it is not Comparable 

I think, you are in doubt. You want to make the list of cost of your each product and want to compare it with your competitor's cost. Do you understand your competitor as your enemy? Will he kill you? Has he become the powerful as devil? It is your thinking that is the reason, you are saying that methods of cost accounting are differ from organisation to organisation. You are unable to compare it with other. I can prove that this is wrong.

a) Cost accounting and its methods are not made for comparison purpose but its aim is to calculate the cost and control it. If you will calculate your each cost, it means, you will pay your expense efficiently. I also use the cost accounting. I make my personal budget of expense. I always interested to see my weakness in the budget.

b) Make your competitor as your friend. At that time, you will care your friend's need. You will use the same method of cost accounting what your friend has adopted.

4. Some Say that There is Lack of Accuracy in it

If you can not see water clearly, you will see that water is not clear. Default in your eyes not in the water. Cost accounting provides you the knowledge and you are seeing its weakness. You may see that raw data is from financial accounting. So, weakness of financial accounting will be in cost accounting. You may see that it is fully dependent on the estimation like the estimation of standard cost and estimation of base absorption of overhead. Yes, it is correct, we use the estimation in the cost accounting. But, with this, we can not create the limit of cost accounting. In math, there is the lesson probability. It is also estimation. So, on this basis, we can not create the limit of maths. Instead of wasting time to learning the limitation of cost accounting, we have to use our time for making powerful and correct estimation. At that time, we can contribute in the cost accounting.

In end, my aim is to see any knowledge from positive angle instead of seeing from negative angle. If you will see cost accounting from my angle, you will surely able to learn many good things from this great knowledge. 

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