COST ACCOUNTING –MEANING, TYPES AND OBJECTIVES

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Cost accounting is a facet of managerial accounting which involves the classification, assignment, accumulation and control of costs.

It was defined by the Chartered Institute of Management Accountants (C.I.M.A) in England as "the process of accounting for cost from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centres and cost units".

It is the systematic process through which all costs (fixed and variable) associated with the production of goods and services are ascertained and controlled.

Cost accounting entails the provision of information for decision making and management planning.

Types Of Cost Accounting

There are four main types of cost accounting, viz: Standard cost accounting, activity-based cost accounting, marginal cost accounting and lean accounting

1. Standard cost accounting: This is an accounting system where standard costs, rather than actual cost, are assigned to the cost of goods sold and inventory.

2. Activity-based cost accounting: This is a costing method in which involve identifying various activities in the activities in the firm and then allocating cost to different product and services based on the actual consumption of each.

3. Lean accounting: This is a type of cost that emphasizes value-based pricing and lean-focused performance measurement 

4. Marginal cost accounting: This is a costing method that involves analyzing the impact of adding one additional unit into production.

It is also known as the cost-volume-profit analysis.

Objectives Of Cost Accounting

1.  To determine the cost of production for each of the organization's units and departments

2. To gather, analyse and classify all expenses pertaining to the cost of products and operation

3. To supply sufficient data for the creation of the profit and loss account and the balance sheet oregularly

4. To give a detailed explanation for the profit (or loss) shown on the profit and loss statement.

5. To serve as the basis for production planning and prevention of economic wastage

6. To aid in ascertaining and control of costs in the organization

7.  To assist the company in determining break-even points and taking appropriate action to mitigate any risk that may arise.

8. To provide cost data that will serve as the basis for measuring efficiency in the organization

9. To assist management in determining the profitability of each organizational product

10. To provide cost data for different periods which can aid in the implementation of budgetary control.

11. To aid management in implementing its price-fixing program.

12. To reveal sources of economies in production in terms of methods, types of equipment, output and design.

13. To provide cost data required for management planning and decision making

14. To assist managers in the efficient allocation of cost.

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