Cost Accounting Terminologies Essay

Cost accounting. as a tool of direction. provides direction with elaborate records of the costs associating to merchandises. operations or maps. Cost accounting refers to the procedure of finding and roll uping the cost of some peculiar merchandise or activity. It besides covers categorization. analysis and reading of costs.

The cost so determined and accumulated may be the estimated hereafter costs for be aftering intents. or existent ( historical ) costs for measuring public presentation. The Institute of Cost and Management Accountant ( ICMA ) . London. defined cost accounting as “the procedure of accounting for cost from the point at which outgo incurred or committed to the constitution of its ultimate relationship with cost centres and cost units. In its widest use it embraces the readying of statistical informations. the application of cost control methods and the ascertainment of profitableness of activities carried out or planned. ”

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Cost accounting and bing have clearly different significances. The Institute of Cost and Management Accountant ( ICMA ) . London. defined bing as the ascertainment of costs. Costing includes the “techniques” and “processes” of determining costs. The technique refers to the rules or regulations which are applied for determining costs of merchandises manufactured and services rendered. There are chiefly two methods of bing occupation bing and procedure costing. The procedure includes the twenty-four hours to twenty-four hours routine of finding costs within the methods of bing adopted by the concern endeavor. Within such a procedure. there could be historical costing. fringy costing. soaking up costing and standard costing etc.

Aims of Cost Accounting

There is a direct relationship among information demands of direction and cost accounting aims and techniques and tools used for analyses in cost accounting. Cost accounting has the undermentioned three of import aims:

1. To find the merchandise cost. 2. To ease planning and control of regular concern activities. 3. To provide information for short and long-term determination.

Merchandise Costing The aim of finding the cost of merchandises is the premier importance of cost accounting. The entire merchandise costs and cost per unit of merchandise are of import in doing inventory rating. make up one’s minding monetary value of the merchandise and managerial determination devising.

Planing and Control

Another of import aim of cost accounting is the creative activity of utile cost informations and information for the intents of planning and control by direction. The different alternate programs are evaluated in footings of respective costs and associated benefits. The direction control over concern operations aims to set up balance between existent and budgeted public presentation. A decently designed cost accounting system includes the undermentioned stairss in the control procedure: 1. Comparing existent public presentation with budgets and standard 2. Analyzing the discrepancies between budget and criterions and existent by causes. and direction duty so that disciplinary actions may take topographic point. 3. Supplying directors with informations and studies about their single public presentations and public presentations of subsidiaries.

Information for determination

Another of import aim of cost accounting system is to supply informations and particular analyses for short and long-term determinations of a non-recurring nature. Appropriate cost information must be accumulated to do a broad assortment of short and long tally determination. Harmonizing to Henke and Spoede. the following are the cost information developed in cost accounting: 1. As a footing for valuing manufactured stock lists and cost of goods sold in externally presented fiscal studies. 2. In commanding operations through the rating of operating consequences and the arrangement of duties for the utilizations of organisational resources on the shoulders of specifically identifiable individuals within the organisation. 3. In be aftering operations through the constitution of cost and budgetary ends. 4. In doing day- to- twenty-four hours runing determinations.

The cost information is used for two intents in most organisations:

1 ) the cost accounting systems provide information to measure the public presentation of an organisational unit or his director. and

2 ) besides provide the agencies for gauging the unit cost of merchandises or services that the organisation can fabricate or supply to others.

a ) Performance measuring: This measuring can be done by comparing current costs with those who were expected – or standard costs budgeted cost – to the grade of cognizing which of them have been controlled. Deviations of expected with the current – discrepancies – can be identified. evaluated and discussed by directors.

B ) Cost of goods and services: In fabricating companies. the costs of goods must be measured to find the cost of points transferred from work in process stock list to finished merchandises. To run into the demands for information. a cost system should mensurate all the costs of fabricating procedure and apportion a part of those costs to each unit of end product. The cost to obtain. maintain and pull off the fabrication works or edifice should be added to the cost of stuff and productive work that requires each unit. The first are called indirect costs and the two last are called direct costs.

degree Celsius ) Net income analysis. Information in costs is indispensable to analyse the net incomes obtained from a merchandise or merchandise line. The information on the cost of a merchandise enables directors to measure the part border – the difference between the monetary value and variable costs – and the gross border – the difference between the monetary value and the entire cost of the merchandise.

vitamin D ) Product mix. For the companies that offer more than one merchandise or serve the cost information is cardinal to manage the mix of merchandises or services offered to clients. With information on cost-profit. a director can take the attempt in gross revenues and advertisement for merchandises that generate greater value. The merchandises that do non make any net income can be removed. hold a monetary value reassignation. or tied up with merchandises that have greater public-service corporation.

vitamin E ) Price tryst. Regardless of where monetary values are determined by the forces of market demand. merchandise distinction and advertisement offer to many directors some kind of thought to delegate monetary values to merchandises or services. The costs of merchandises and tendencies normally offer signals to directors that monetary values should be changed. An illustration could be the alteration in the cost of a stuff or critical constituent which can give a signal to reevaluate the monetary value of a merchandise or service.

degree Fahrenheit ) Cost of service. Many merchandises require the marketer to supply extra services to clients. In such instances. the information about the cost of service is so of import for directors as the cost of production. The same for companies that offer services merely. unless the cost of service is measured. there is no manner to cognize whether supplying the service is profitable or non. or whether alterations in monetary values or advertisement are needed. Looked from another angle. the utilizations that the disposal of a company can give to the costs can be grouped into 4 classs. specified below

Method of bing As province earlier. the term bing refers to the techniques and procedures of finding cost of a merchandise manufactured or a service rendered. Different methods are applied in concern endeavors to determine cost depending upon the nature of the merchandise. production method and specific concern conditions. For illustration. in a fabric or steel company. natural stuff base on ballss through different phases and production is done continuously. In some other industries. production is done at different clients specific orders and each occupation is different from the other occupation.

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