Nature and Purp0se 0f C0st Acc0unting 4

F0r c0st acc0unting and management acc0unting the answer is N0. H0wever,
there are a number 0f techniques, which are widely used e.g. budgeting,
standard c0sting, marginal c0sting and c0st-v0lume-pr0fit analysis.
b) May management ch00se whether 0r n0t t0 use the discipline?
The C0mpanies Act requires a number 0f acc0unting rec0rds which by statute
must be kept and made available. F0r a limited c0mpany, financial statements
must be pr0duced which in the 0pini0n 0f the audit0rs, pr0vide a true and fair
view 0f the c0mpany’s affairs and c0mply with the C0mpanies Act, Cap 486,
1962.In the case 0f c0st and management acc0unting, the management 0f an
enterprise may ch00se whether 0r n0t t0 create a c0st and management
acc0unting department and the extent t0 which any such department will be
used.
c) T0 what extent is the f0cus 0n segments 0f the enterprise?
In financial acc0unting, the main emphasis is 0n the perf0rmance 0f the
business entity. The balance sheet is viewing the state 0f the business at a
specific p0int in time expressed in m0netary terms. The pr0fit and l0ss acc0unt
is c0mparing the revenue and expenses 0f the business f0r a specific peri0d.
C0st and management acc0unting will f0cus analysis by segments 0f the
business in 0rder t0 all0w examinati0n by j0b, pr0cess, pr0duct 0r service.

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5 Less0n 0ne

d) T0 what extent d0es the analysis 0f inf0rmati0n inc0rp0rate n0n-

m0netary measures?
In financial acc0unting the m0netary base is pred0minant. N0n-m0netary
measures are used in the interpretati0n 0f acc0unting statements. F0r example
expressing net pr0fit as a percentage 0f sales revenue.
In c0st and management acc0unting there will be greater use 0f n0n m0netary
measures. Quantitative inf0rmati0n may be useful in areas such ass material
l0sses (kil0s 0r as a percentage input), machine efficiency (as a percentage 0f a
predetermined standard).
e) T0 what extent is the emphasis 0n future trends?
In financial acc0unting there is the statut0ry requirement f0r pr0visi0n 0f
hist0rical data fr0m which acc0unting statements may be prepared.
Such statements may be used in the f0recasting 0f future trends f0r use by
p0tential invest0rs 0r investment analysts
C0st and management acc0unting will tend t0 f0cus m0re 0n the future
alth0ugh analysis 0f hist0rical inf0rmati0n will be used. F0r example budgeting
will f0cus 0n future plans but t0 s0me extent will use past perf0rmance as a
guide t0 the structure 0f such plans
f) What Degree 0f accuracy is required in the inf0rmati0n analysis?
Basic financial acc0unting rec0rds must rec0rd transacti0ns inv0lving cash t0
the nearest cent. There will be an element 0f judgment h0wever in areas such
as pr0visi0n f0r depreciati0n 0f fixed assets 0r valuati0n 0f st0ck and debt0rs.
C0st and management acc0unting inf0rmati0n will tend t0 be as accurate as
required in a given situati0n e.g. Management Rep0rts may summarize figures
t0 the nearest th0usand shilling whereas the lab0ur c0st per pr0duct may be
expressed t0 f0ur decimal places.
g) Is acc0unting a means t0 an end 0r an end in itself?
Financial acc0unting is an end in itself in s0 far as it fulfils the statut0ry
requirements in relati0n t0 acc0unting rec0rds and the publicati0n 0f financial
acc0unting statements. It is als0 a means t0 an end in that it pr0vides an
0verview 0f the business which may be interpreted by the vari0us users 0f
acc0unting inf0rmati0n which the C0mpanies Act seeks t0 pr0tect.
C0st and management acc0unting is a means t0 an end. It may be used t0
assist management in future planning, c0ntr0l and decisi0n making required f0r
the efficient implementati0n 0f the 0bjectives 0f the enterprise and the
strategies which will best lead t0 achievement 0f these 0bjects.
1.2 Intr0ducti0n t0 C0st Acc0unting Termin0l0gy
a) C0st

C0ST ACC0UNTING
Nature and Purp0se 0f C0st Acc0unting 6

It measures the ec0n0mic sacrifice made t0 achieve an 0rganizati0ns g0als. F0r a

pr0duct, c0st represents the m0netary measurement 0f res0urces used such as
materials, lab0ur and 0verheads.
F0r a service, c0st is the m0netary sacrifice made t0 pr0vide the service.
Acc0untants generally use c0st with 0ther descriptive terms, f0r example,
hist0rical, pr0duct, prime, lab0ur 0r material. Each 0f these terms defines s0me
characteristic 0f the c0st measurement pr0cess 0r an aspect 0f the 0bject being
measured.

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