Cost Accounting Terminologies, Purpose of Cost Information, Types of Cost Accounting Report Etc
Part 1- Conceptual Framework
Cost Accounting
Cost accounting, as a tool of management, provides management with detailed records of the costs relating to products, operations or functions. Cost accounting refers to the process of determining and accumulating the cost of some particular product or activity. It also covers classification, analysis and interpretation of costs. The cost so determined and accumulated may be the estimated future costs for planning purposes, or actual (historical) costs for evaluating performance. The Institute of Cost and Management Accountant (ICMA), London, defined cost accounting as “the process of accounting for cost from the point at which expenditure incurred or committed to the establishment of its ultimate relationship with cost centers and cost units. In its widest usage it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of profitability of activities carried out or planned.”
Costing
Cost accounting and costing have distinctly different meanings. The Institute of Cost and Management Accountant (ICMA), London, defined costing as the ascertainment of costs. Costing includes the “techniques” and “processes” of ascertaining costs. The technique refers to the principles or rules which are applied for ascertaining costs of products manufactured and services rendered. There are mainly two methods of costing job costing and process costing. The process includes the day to day routine of determining costs within the methods of costing adopted by the business enterprise. Within such a process, there could be historical costing, marginal costing, absorption costing and standard costing etc.
Objectives of Cost Accounting
There is a direct relationship among information needs of management and cost accounting objectives and techniques and tools used for analyses in cost accounting. Cost accounting has the following three important objectives: 1. To determine the product cost.
Cost Accounting
Cost accounting, as a tool of management, provides management with detailed records of the costs relating to products, operations or functions. Cost accounting refers to the process of determining and accumulating the cost of some particular product or activity. It also covers classification, analysis and interpretation of costs. The cost so determined and accumulated may be the estimated future costs for planning purposes, or actual (historical) costs for evaluating performance. The Institute of Cost and Management Accountant (ICMA), London, defined cost accounting as “the process of accounting for cost from the point at which expenditure incurred or committed to the establishment of its ultimate relationship with cost centers and cost units. In its widest usage it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of profitability of activities carried out or planned.”
Costing
Cost accounting and costing have distinctly different meanings. The Institute of Cost and Management Accountant (ICMA), London, defined costing as the ascertainment of costs. Costing includes the “techniques” and “processes” of ascertaining costs. The technique refers to the principles or rules which are applied for ascertaining costs of products manufactured and services rendered. There are mainly two methods of costing job costing and process costing. The process includes the day to day routine of determining costs within the methods of costing adopted by the business enterprise. Within such a process, there could be historical costing, marginal costing, absorption costing and standard costing etc.
Objectives of Cost Accounting
There is a direct relationship among information needs of management and cost accounting objectives and techniques and tools used for analyses in cost accounting. Cost accounting has the following three important objectives: 1. To determine the product cost.