The Meaning of Cost Accounting
Meaning of Cost Accounting
Previously, cost accounting was considered to be a technique for the ascertainment of costs of products or services on the basis of historical data. In time, due to the competitive nature of the market, it was realized that ascertaining of cost is not as important as controlling costs. Cost accounting started to be considered more as a technique for cost control as compared to cost ascertainment. Due to the technological developments in all fields, cost reduction has also come within the ambit of cost accounting. Cost accounting is, thus, concerned with recording, classifying and summarizing costs for determination of costs of products or services, planning, controlling and reducing such costs and furnishing of information to management for decision making.
Concept of Cost
Cost accounting is concerned with cost and therefore is necessary to understand the meaning of term cost in a proper perspective. In general, cost means the amount of expenditure (actual or notional) incurred on, or attributable to a given thing. However, the term cost cannot be exactly defined. Its interpretation depends upon the following factors:
• The nature of business or industry
• The context in which it is used
1. Fixed, Variable and Semi-Variable Costs
The cost which varies directly in proportion with every increase or decrease in the volume of output or production is known as variable cost. Some of its examples are as follows:
• Wages of laborers
• Cost of direct material
• Power
The cost which does not vary but remains constant within a given period of time and a range of activity in spite of the fluctuations in production is known as fixed cost. Some of its examples are as follows:
• Rent or rates
• Insurance charges
• Management salary
The cost which does not vary proportionately but simultaneously does not remain stationary at all times is known as semi-variable cost. It can also be named as semi-fixed cost. Some of its
Previously, cost accounting was considered to be a technique for the ascertainment of costs of products or services on the basis of historical data. In time, due to the competitive nature of the market, it was realized that ascertaining of cost is not as important as controlling costs. Cost accounting started to be considered more as a technique for cost control as compared to cost ascertainment. Due to the technological developments in all fields, cost reduction has also come within the ambit of cost accounting. Cost accounting is, thus, concerned with recording, classifying and summarizing costs for determination of costs of products or services, planning, controlling and reducing such costs and furnishing of information to management for decision making.
Concept of Cost
Cost accounting is concerned with cost and therefore is necessary to understand the meaning of term cost in a proper perspective. In general, cost means the amount of expenditure (actual or notional) incurred on, or attributable to a given thing. However, the term cost cannot be exactly defined. Its interpretation depends upon the following factors:
• The nature of business or industry
• The context in which it is used
1. Fixed, Variable and Semi-Variable Costs
The cost which varies directly in proportion with every increase or decrease in the volume of output or production is known as variable cost. Some of its examples are as follows:
• Wages of laborers
• Cost of direct material
• Power
The cost which does not vary but remains constant within a given period of time and a range of activity in spite of the fluctuations in production is known as fixed cost. Some of its examples are as follows:
• Rent or rates
• Insurance charges
• Management salary
The cost which does not vary proportionately but simultaneously does not remain stationary at all times is known as semi-variable cost. It can also be named as semi-fixed cost. Some of its
References: Horngren, C.T., Srikant, Datar M., & Foster, G. (2007). Cost Accounting: A Managerial Emphasis. Globusz Publishing.