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I Introduction To Cost Accounting
I Introduction To Cost Accounting
COST ACCOUNTING
a system that records, summarizes, analyzes and interprets the details of cost of materials, labor and
overhead necessary to produce and sell an article.
refers to recording, classifying and reporting all costs aspects of company’s performance during a
particular period of time.
involves gathering and providing of information for decision needs of all sorts, ranging from
management of recurring operation to the making of strategic decisions and formulation of major
organization policies.
provides management with information for planning new products to evaluating the success of the
marketing campaign.
The goal is to help management in achieving the maximum value of the organization
Value chain – is the set of activities that transform raw resources into goods or services that end
users purchase and consume and the treatment or disposal of any waste generated by them
The objective of modern cost accounting is to ensure that the entire value chain is as efficient as
possible.
Managers at each of stage of value chain may require information on the performance of the products,
services, suppliers, employees and customers. Managers and cost accountant work together at each
stage to make decision that increase firm values
Cost accounting information are needed by end users or persons under research and development,
design of products and processes, purchasing, production, marketing and customer’s service.
Scope
cost accounting serves multi-purposes.
Cost accounting concepts and techniques are applicable not only to manufacturing concern to
satisfy management needs for product cost information but also to every type and kind of activity,
regardless of size, in all types of organizations. Non manufacturing activities should employ cost
accounting in order to operate efficiently.
Cost accounting is essential not only to profit-seeking entities but also to not-for-profit seeking entities,
such as government agencies, churches and charities.
generally, the major function it to provide detailed product cost information to be able to compute unit
cost of products to manufacture, sell goods or render various services.
cost accounting also provides vital information needed to plan for future operations, prepares
company’s budget and a the most valuable management tools to control operations – helps
management weigh the various courses of action before any final commitment are made.
Once operation begin, cost accounting reveals how efficiently the work being done, where the weak
and strong points/spots are and how to improve performance. Management can issue directives,
perform follow-up activities and obtain the operating results the ensure the prosperity and growth for
the enterprise.
Cost Accounting -
creates an overlap between financial accounting and management accounting by providing product
cost information for financial statements and quantitative, disaggregated, cost –based information
that managers need to perform their responsibilities.
Financial accounting
designed to meet external information needs and to comply with generally accepted accounting
principles or PFRS
product cost information pertains to costs incurred to make a unit of product - to be accounted for in
compliances with GAAP – IAS , IFRS.
Management accounting
attempts to satisfy internal user’s information needs.
Product cost information can be developed outside the constraints of GAAP. – such as cost for
research and development and distribution costs.
Management need forward-looking information to be able to prepare plans, evaluate performance and
make more companies decisions.
Cost Accounting interface with other fields of study. It provides data for use in decision models for finance,
operations management, and marketing. It also relates to motivational behavior because it used for planning
and performance evaluation.
1. Cost accumulation – involves the collection of cost data in some organized way by means of accounting
system.
2. Cost assignment – cost system traces direct costs and allocates indirect costs to designated cost
objects. Managers will be able to compute total costs and unit cost of a product or service and use this
information in pricing and management decisions.
1. Cost accounting system provide data for compliance with reportorial, contractual and regulatory
requirements.
costs are used for external purposes – used by external users.
costs used for financial accounting purposes – cost used by outside parties, stockholders or creditors
– to evaluate the performance of the company.
At the end of a period, planned performance is compared to actual performance and the difference is
analyzed .
Managers and cost accountants helps identify what information in relevant and irrelevant when
making decisions.
Key Financial Managers in an Organization
Chief financial officer Manages entire finance and a. sign off financial statements
accounting functions b. determines policy on debt
versus equity ratio.
Management and cost accountants have important ethical responsibilities that are related to competence,
confidentiality, integrity and objectivity. The accountant must comply with the Standards of Ethical Conduct
for Practitioners of Management Accounting and Financial Accounting issued by the Institute of
Management
Accountants.
Management and cost accountants have a responsibility to maintain the highest levels of ethical conduct.
They also have a responsibility to maintain professional competency, refrain from disclosing confidential
Information, maintain integrity and objectivity in their work (source: Cost Accounting and Control by Ma. Elenita
B. Cabrera and Gilbert Anthony Cabrera)